Key issues for feedback
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8. Through this consultation process we are seeking feedback on:
- the definition of BNPL used in the Draft Regulations
- the threshold credit amount above which affordability assessments will be required
- whether those affordability assessments should include compliance with the
- other obligations of the CCCFA that might need to be adjusted for BNPL
- any other comments on the drafting of provisions to improve clarity and workability.
How should BNPL be defined?
9. BNPL is defined in clause 4 of the Draft Regulations. The definition is intended to cover BNPL business models that are not otherwise caught by the CCCFA. It aims to avoid capturing other forms of lending where there may be less risk of financial hardship.
1. Do you have any comments on the definition of BNPL? Are there contracts that should be caught, but are not? Are there contracts that shouldn’t be caught, but are?
What threshold amount of BNPL credit should trigger the need to carry out an affordability assessment?
10. Cabinet agreed that BNPL lenders will be required to assess affordability for larger amounts of BNPL credit, and to consult on a proposed threshold of $600. In setting this threshold, Cabinet considered the average size of BNPL loans, the ability for borrowers to service BNPL loans, and the revenue generated by BNPL providers.
11. The Government is consulting on the threshold amount to ensure it best achieves the Government’s aims of reducing financial hardship while retaining the benefits. We are also seeking feedback on the financial implications of this threshold, compared to any other threshold.
12. Clauses 18I(1) and 18I(2) of the Draft Regulations provides that BNPL below a credit amount of $600 will be exempt from affordability requirements under section 9C(3)(a)(ii). However, clauses 18I(3)(a) and 18I(3)(b) provide that, as a condition of the exemption, lenders must participate in comprehensive credit reporting.
2. Do you have any comment on the proposed threshold of $600? Should the threshold be higher than $600? Lower? Why?
3. What do you consider the financial impact of a $600 threshold would be?
4. Aside from the dollar amount, do you have any comments on how the threshold is drafted in clauses 18I(1) and 18I(2), or the exemption condition requiring comprehensive credit reporting is drafted in clauses 18I(3)(a) and 18I(3)(b)?
Should BNPL affordability assessments comply with the affordability regulations?
13. Cabinet has agreed that affordability assessments should be required for BNPL loans above the $600 threshold discussed above. Cabinet agreed to consult on 2 options:
- Option 1: Lenders do not need to comply with regulations 4AC–4AN. However, lenders must still carry out an affordability assessment in accordance with the principles-based requirement in section 9C(3)(a)(ii) of the CCCFA. This requires that lenders carry out reasonable inquiries so as to be satisfied that it is likely that the borrower will make payments under the contract without substantial hardship.
- Option 2: Lenders must carry out a full CCCFA affordability assessment in accordance with the regulations 4AC–4AN. These regulations set out a detailed process for assessing the borrower’s income and expenses.
14. Clause 5 of the Draft Regulations gives effect to Option 1 by providing an exception from regulations 4AC-4AN for BNPL.
15. Option 2 is the default treatment of BNPL above the threshold, if no exception is provided from the Regulations for BNPL.
5. Should regulations 4AC–4AN apply to BNPL? Why, or why not?
6. What would the impact be of applying regulations 4AC–4AN on BNPL lenders and consumers?
7. If regulations 4AC–4AN do not apply to BNPL, what guidance (if any) should be given to BNPL lenders through the Responsible Lending Code about compliance with section 9C(3)(a)(ii) of the CCCFA?
16. Disclosure of key contract terms is a key requirement of the CCCFA. For loans subject to the CCCFA, lenders are required to disclose key information about contract terms when the contract is entered into and when the contract is varied. This assists consumers to make informed decisions about entering into or varying a credit contract.
17. Some consumer credit contracts, including some BNPL contracts, are ‘revolving credit contracts’. These contracts provide an ongoing facility for borrowers to make purchases without entering into or varying the contract. This means that purchases can be made without additional disclosure being made to the borrower.
18. In the case of BNPL, Cabinet has agreed that an additional, specific disclosure should be made before each purchase that includes the dates on which payments are due, the amount of those payments, and the fee that will be incurred if payments are missed. This is intended to ensure that borrowers are aware of their specific obligations and to help them avoid missing payments and incurring default fees.
19. This specific disclosure obligation is given effect by clause 18I(3)(c) of the Draft Regulations.
8. Do you have any comments on the drafting of clause 18I(3)(c)?
9. Are there other CCCFA requirements that should be adjusted or exempted for BNPL? If so, what would the impact be of applying current CCCFA requirements? What would the benefits be of adjusting or exempting from them?
10. Do you have any other comments or suggestions for the drafting of the regulations?
20. We are considering what an appropriate commencement date for the Draft Regulations would be (i.e. the period of time after the Draft Regulations are made before they come into force). We would like to hear submitters’ views on the length of time that should be
provided to BNPL lenders to implement the changes.
11. Do you have any comments on when the regulations should commence? Please provide reasons for your answer.