Australia's Department of the Treasury issues draft regulations to cap fees and set responsible lending rules for buy now pay later low cost credit

Australia's Department of the Treasury published an exposure draft of the National Consumer Credit Protection Amendment (Low Cost Credit) Regulations 2025, proposing amendments to the National Consumer Credit Protection Regulations 2010 to support the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 framework for low cost credit contracts (LCCCs), which may include buy now pay later (BNPL) contracts. The draft regulations would prescribe the financial situation inquiries and unsuitability assessment policy requirements that apply under the modified Responsible Lending Obligations (RLO) regime, set fee and charge caps that determine whether a contract qualifies as an LCCC, specify required content for first default in payment notices for LCCCs, and exclude certain no-cost medical financing from the BNPL definition. Key proposals include aggregate fee caps across all LCCCs between a provider and a consumer over a rolling 12-month “fee period”, with a maximum of AUD 320 in the first fee period and AUD 245 in each subsequent fee period, structured through caps on “other fees” (AUD 200 first period and AUD 125 thereafter) and default fees (AUD 120 per period, with alternative caps where no other fees apply). The draft also sets a 120-day period for completing an LCCC unsuitability assessment before the “credit day” and requires inquiries that seek substantially correct information on income, expenditure, and existing LCCCs, small amount credit contracts and consumer leases, supported by mandatory credit reporting body checks that escalate from a “negative credit check” to a “partial credit check” once the value of all LCCCs in force between the consumer and the licensee reaches AUD 2,000. Other elements include requirements for regular review and prompt updating of written unsuitability assessment policies using evidence such as write-off rates, arrears, complaints and hardship data, changes to ensure BNPL contracts issued by Authorised deposit-taking institutions are not covered by the short-term Credit Code exemption, and amendments aligning disclosure and default notice rules to LCCCs and the “first default in payment” terminology. The draft provides that the regulations would commence on the later of the day after registration and immediately after the commencement of Parts 2 to 10 of Schedule 2 to the BNPL Act, with the explanatory material indicating the first fee period is intended to commence on 11 June 2025 or an earlier Proclamation date if set. Transitional provisions would apply the fee cap rules to LCCCs entered into before commencement if they remain in force when the caps start, while the amended default notice requirements would apply to defaults occurring on or after commencement.