The Australian Securities and Investments Commission’s (ASIC) publication of Regulatory Guide 281 Low cost credit contracts is a timely reminder that as of 10 June 2025, low-cost credit contracts (LCCCs) and buy now pay later (BNPL) contracts will be regulated under the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act).
Who will need to comply with the National Credit Act from 10 June 2025?
Where an entity is a provider of credit under a LCCC or a BNPL contract, it must hold and maintain an Australian credit license and comply with obligations under the National Credit Act. Most BNPL contracts will be regulated as LCCCs, but credit providers will need to carefully evaluate the fees, charges, and term of their products against the criteria set out in the National Credit Act and the related rules. Further information is available in Part B of Regulatory Guide 281.
Key changes
Modified responsible lending obligations
The reforms modify several of the standard responsible lending obligations (RLOs) for LCCCs under the National Credit Act. The reforms aim to maintain the benefits to consumers and the economy of these contracts, whilst reducing the risk of consumer harm by bringing LCCCs within the scope of the consumer credit protection regime.
A provider may elect to comply with the modified RLOs for all, or a class of, its LCCCs. Where an election is made, the LCCC must include a statement that an election has been made. Where an election is not made, or an entity revokes its election, the standard RLOs must be complied with. Where RLOs are unmodified, the standard RLOs must be complied with.
Further information is available in Part D of Regulatory Guide 281.
The key modifications include:
- Reasonable inquiries: a mandate that reasonable inquiries must include inquiries into the consumer’s income, expenditure, and credit history. BNPLs providers are also required to have regard to several factors when making a reasonable inquiry, including:
a) the nature of the low-cost credit contract;
b) whether the consumer is financially vulnerable;
c) if there is a target market determination (and LCCCs must have a target market determination), whether the consumer is part of the target market; and
d) what procedures the provider has in place to reduce the risk to the consumer; - Unsuitability: a new presumption that LCCCs with a credit limit of $2,000 or less meet the customer’s requirements and objectives for the purposes of an unsuitability assessment. However, a provider must still assess the consumer’s ability to comply with their financial obligations under the contract, especially when increasing their credit limit. See further below;
- Unconditional representations: a general condition that providers not make unconditional representations to a consumer about their eligibility to enter a credit contract, or the availability of credit limit increases, does not apply to LCCCs. However, the duty not to engage in misleading or deceptive conduct remains (as does the risk of penalty proceedings for engaging in misleading or deceptive conduct); and
- Time period: an increase of the period for reasonable inquiries, verification, and assessment to 120 days before entering an LCCC.
Further information is available in Part C of Regulatory Guide 281.
Written unsuitability assessment policy
We expect a lot of attention on BNPL providers’ policies for determining whether an LCCC is suitable for a particular consumer.
Broadly, the requirements for an unsuitability assessment policy are:
- Content: the policy includes processes to ensure compliance with the obligations to assess whether a contract or credit limit increase is unsuitable;
- Regular review: the policy be reviewed and updated when events or circumstances suggest that the policy is not effective to ensure compliance with RLOs. A minimum standard of review includes the review of written-off debts, measures of the rates of arrears, relevant complaints data, and hardship data; and
- Update: the policy be updated, as soon as practicable, to incorporate any changes which would make the policy more effective.
Modified RLOs that apply regardless of an election
Some modified RLOs for LCCCs will apply regardless of whether a provider has elected to comply with the modified obligations. This includes obligations that advertisements for LCCCs do not need to include comparison interest rates, and default notices must be provided to a consumer the first time there is a default under a credit contract.
Further information is available in Part D of Regulatory Guide 281.
Enforcement
Bringing LCCCs and BNPL products within the scope of the National Credit Act has been on the wish lists of Australia’s regulators and consumer protection advocates for many years. We anticipate ASIC will carefully examine compliance by LCCC and BNPL providers with the introduction of the stronger regulations on 10 June 2025.
BNPL and LCCC providers will need to ensure they proactively review their policies and practices to ensure compliance with the new requirements and, if necessary, lodge their credit license applications before the commencement of the reforms.