Consumer groups tough on buy now pay later

Consumer interest groups want buy now pay later providers to be subject to the same stringent lending laws as conventional credit providers.

The government is looking to regulate buy now pay later (BNPL) products to stop consumers racking up debts they can't pay back and has invited submissions into three reform options recommended by Treasury.

Consumer groups have joined forces to urge the government to adopt the toughest of the three options, which would see BNPL products treated the same way as other credit products.

"We're not asking for anything special – just that buy now, pay later plays by the same rules as everybody else that lends money to consumers, including the obligation to lend safely," CHOICE head Alan Kirkland said.

Consumer groups say the other two options - bolstering the industry's self regulatory code with credit checks, or partially bringing BNPL into the traditional credit laws and introducing more modest lending rules - would not be enough to stop the financial products inflicting harm.

"BNPL is credit, plain and simple, so it needs to be regulated in the same way as other credit products to provide people with adequate safeguards," Financial Counselling Australia chief executive officer Fiona Guthrie said.

Ms Guthrie said financial counsellors were reporting a surge in financial stress caused by the financial products.

"People are having to forgo other essential items in order to pay their BNPL debts," she said.

A RateCity survey found 41 per cent of the BNPL users had ended up in some kind of financial distress from using the platform, including 18 per cent that had missed mortgage repayments or other bills to meet their debt commitments. 

Consumer Action Law Centre chief executive officer Gerard Brody said one of the issues with BNPL is that direct debits prioritise repayments over other expenses.

"The practice of providers denying service access to those that fall into arrears can also have perverse impacts, as people respond by prioritising repayments so they don't get kicked off the app."

He said these design features were disguising financial distress as providers could report low rates of default. 

Financial Services Minister Stephen Jones flagged the changes to BNPL regulations on Monday.

At the moment, the industry is self regulated via a voluntary code of practice. Several providers have signed up to the code, but many newer players have not.

Mr Jones said credit checks would likely be implemented at a minimum.

"We don't want to see people in the same situation they were in the bad old days of credit cards ... they might have had five, six, seven or eight credit cards," Mr Jones told Nine's Today program

"No one company knew the other one had one, and this person was just simply unable to pay off their debts and they were in a dire credit downward spiral."

Mr Jones said changes should be finalised within a one-year window.

BNPL provider Zip welcomed the proposal to enhance regulations on the industry.

"We have been working with Treasury on options for some time and endorse any changes that give consumers greater confidence when using BNPL products," Zip head of ANZ Cynthia Scott said.

She said the company had already conducted credit and affordability tests, and supported all of the three regulatory options on the table.

However, she told AAP if BNPL products were to be brought under the same laws as credit cards and other traditional credit products, it would be preferable for the laws to recognise BNPL as an alternative form of credit.