Buy now pay later regulation: an explainer
Since 10 June 2025, Australia’s consumer credit laws have expressly covered buy now pay later (BNPL) products. Before then, an interest-free arrangement could often fall outside those laws because the customer paid no charge for the credit.
Providers must identify which rules apply to each product.
Most consumer BNPL products are regulated as low cost credit contracts (LCCCs). Products that do not meet that definition generally remain subject to the ordinary credit rules. The applicable rules depend on the product structure, fees and customer purpose.
Key takeaways
The regime commenced on 10 June 2025.
A BNPL provider generally needs an Australian credit licence with the correct authorisations.
The National Credit Code can apply even if the customer pays no interest or other charge.
Most consumer BNPL products are LCCCs if they meet the fee caps.
Products outside those caps generally remain subject to the ordinary credit rules.
Modified responsible lending obligations are available by election, but still require an unsuitability assessment.
Fee caps, hardship and complaints obligations may apply to earlier contracts.
Providers should classify each product and then apply the resulting obligations.
Is it consumer credit?
The first issue is whether the credit falls within the National Credit Code, not whether the product is marketed as BNPL.
The Code broadly applies when credit is provided to an individual or strata corporation mainly for personal, domestic or household purposes, or specified residential investment purposes. The credit must be supplied in the course of a business carried on in Australia, or as part of another business.
Purpose matters. Credit used to buy a television for home may be regulated, while credit used to buy a business laptop may fall outside the Code.
Providers should assess purpose for each use, not only when the platform is first classified.
What counts as a BNPL arrangement?
A BNPL arrangement generally has three elements:
a merchant supplies goods or services to a consumer;
a third-party BNPL provider pays the merchant some or all of the price, directly or indirectly; and
the provider gives the consumer credit connected with that purchase.
The provider’s agreement with the consumer is the BNPL contract. The definition can apply whether or not fees are charged, when the merchant is paid, whether the credit is continuing, and whether the parties sign one contract.
The product name does not determine its treatment. A payment service, instalment plan or checkout facility may still be BNPL if it meets the statutory definition.
A narrow exclusion applies to some no-cost medical financing involving a related body corporate and a Medicare-funded procedure. It is not a general exemption for health payment plans.
Is the contract a low cost credit contract?
The next issue is whether the BNPL contract is an LCCC.
An LCCC is a BNPL contract that meets prescribed conditions, including fee limits. ASIC says most BNPL contracts fall within this category.
Tailored rules may then apply to responsible lending, disclosure, electronic communications, credit representatives and default notices.
A contract that does not qualify as an LCCC generally remains a regulated credit contract, without the LCCC modifications.
How do the fee caps work?
The fee caps apply across all LCCCs between the same provider and customer during each continuous 12-month fee period. They do not apply separately to each purchase.
For non-default fees and charges, the cap is:
$200 in the first fee period; and
$125 in each later fee period.
If non-default fees are charged, default fees are capped at $120 per fee period. If only default fees may be charged, the cap is $320 for the first period and $245 for later periods. The total practical maximum is therefore $320 and $245 respectively.
The first fee period begins on the later of:
the day the customer first becomes a debtor under an LCCC with the provider; and
10 June 2025.
Later fee periods run in fixed 12-month blocks. Closing and reopening an account, or entering a new LCCC with the same provider, does not restart the first period.
Providers therefore need customer-level fee controls.
Responsible lending still applies
An LCCC provider may use the standard responsible lending obligations or elect in writing to use the modified LCCC framework.
In either case, the provider must assess whether the credit is unsuitable, including whether the customer may be unable to meet the obligations or could do so only with substantial hardship.
The modified framework adjusts inquiries and verification according to risk. The provider must obtain information about income, expenditure and existing LCCCs, small amount credit contracts and consumer leases. It must also obtain prescribed credit-report information for individuals, with different requirements below and above $2,000 of potential LCCC debt with the provider.
A rebuttable presumption applies to limits of $2,000 or less, but only to the customer’s requirements and objectives. It does not presume affordability.
A provider using the modified framework must have a written suitability assessment policy. It must explain the assessment method and be reviewed using arrears, write-offs, complaints and hardship data.
Licensing requirements
A person carrying on credit activities involving BNPL contracts generally needs an Australian credit licence with the required authorisations.
An existing authorisation for credit contracts also covers BNPL contracts. A business taking on a different role may need to vary its licence. For example, an entity authorised only to provide credit assistance needs credit-provider authorisation before issuing BNPL contracts.
Licensees must maintain internal dispute resolution, AFCA membership, systems for general licence obligations and applicable breach reporting.
Customer documents and processes
The rules apply throughout the customer relationship.
Before entering an LCCC, the provider must give the customer a pre-contractual statement and the prescribed information statement. The contract must state the repayments and charges, confirm if no interest is payable, and record any election to use modified responsible lending.
Documents may be delivered electronically, including through an app. Customers must be told what is available and how to access it. The documents must be retrievable, saveable, printable and available for a reasonable period.
The first payment default under an LCCC triggers a notice explaining the default, payment method, internal dispute resolution, hardship process and AFCA access. It must generally be given within 14 days. The regulations contain a drafting issue about relief for a quickly corrected default. Providers should check the current law before relying on that relief.
Other obligations
BNPL products may also be subject to the design and distribution obligations, ASIC’s product intervention powers and the consumer protection provisions in the Australian Securities and Investments Commission Act 2001 (Cth). These obligations apply alongside the credit regime.
The AFIA BNPL Code of Practice, which commenced on 1 March 2021, continues to protect customers of Code members until those members move to the AFIA Finance Industry Code of Practice and the BNPL Code is retired.
Practical steps
Classify each product and use. Record whether it is consumer credit, BNPL and an LCCC.
Control fees by customer. Aggregate fees across all LCCCs and retain fee-period history after account closures, migrations and product changes.
Record the responsible lending method. If using the modified framework, make the written election, identify the products covered and include the required contract statement.
Test assessments. Confirm that income, expenditure, existing credit and credit-report information affect decisions. Test outcomes for vulnerable customers and repeated late payments.
Review customer processes. Cover disclosure, app access, statements, default notices, hardship, complaints, collections and account closure.
Use complaints and hardship data. Arrears, default fees and hardship requests may indicate problems with the suitability policy or target market.
Check earlier contracts. Contracts made before 10 June 2025 may be affected by fee caps, hardship rights, internal dispute resolution and later credit-limit increases.
How we can help
Dwyer Harris advises banks, lenders, fintechs and payment providers on consumer credit and payments law. We can help with:
product structuring and regulatory classification;
Australian credit licence requirements and variations;
responsible lending policies and assessment processes;
customer contracts, disclosures and consent flows;
fee structures, hardship, complaints and remediation;
payment product structures, transaction flows and merchant arrangements; and
implementation of regulatory changes across legal, compliance and operational systems.
Our advice covers the full product lifecycle, from design and licensing to customer documentation, distribution, compliance and disputes. We focus on advice that can be implemented within the client’s systems and commercial arrangements.
Get in touch if you would like to discuss how the BNPL and LCCC rules affect your products, contracts or compliance framework.
This article is general commentary and is not legal advice.