ASIC has released its guidance for providers of low cost credit contracts, who will be subject to modified responsible lending obligations.
Fron 10 June 2025, Buy Now Pay Later ("BNPL") providers will be subject to the credit licensing regime, and will therefore be required to:
- Be authorised by a credit licence to provide BNPL contracts; and
- Comply with the obligations under the legislation, including the responsible lending obligations.
Low Cost Credit Contracts ("LCCC")
A LCCC is a BNPL contract where the total amount of fees and charges that may be payable do not exceed:
| Fees or charges (other than default fees) | For the first Fee Period: $200 Otherwise: $125 |
|
|---|---|---|
| Default fees or charges | If only default fees and charges are payable under all LCCCs between the licensee and the consumer: | For the first Fee Period: $320 Otherwise: $245 |
| If default fees and charges and other fees and charges are payable under all LCCCs between the licensee and the consumer: | $120 |
Fee period refers to the period of 12 months that begins on the later of:
- the date the LCCC was entered into; and
- 10 June 2025;
and each subsequent 12 month period.
The modified responsible lending obligations
The standard responsible lending obligations require credit licensees to:
- make reasonable inquiries about the consumer's financial situation, and their requirements and objectives;
- take reasonable steps to verify the consumer's financial situation; and
- make a final assessment (based on the findings of the inquiries and verification) about whether the credit contract is 'not unsuitable' for the consumer.
The modified responsible lending obligations:
- ease some of the requirements in relation to the timing of inquiries, verification and assessments;
- provide specified factors which are to be taken into account when determining what are reasonable inquiries and verification;
- mandate certain inquiries;
- create a rebuttable presumption for LCCCs with a credit limit of $2000 or less; and
- allow licensees to conduct inquiries and an assessment for an amount larger than the initial credit limit. The assessment will apply to any subsequent credit increases up to the larger amount assessed and for a period of up to 2 years.
Differences between the standard obligations and the modified obligations
| Obligation | Standard Obligation | Modified Obligation |
|---|---|---|
| Making reasonable inquiries about the consumer's requirements and objectives | Licensees are required to make reasonable inquiries and have regard to various factors, outlined in RG209.51-78. | There are mandatory factors which are required to be considered as part of reasonable inquiries. These factors are designed to lower the scope and intensity of the inquiries. |
| Making reasonable inquiries about the consumer's financial situation | Licensees are required to make reasonable inquiries and have regard to various factors, outlined in RG209.51-78. There are no mandatory inquiries imposed by legislation. | There are mandatory inquiries licensees must make about a consumer's financial situation. Including information about the consumer's income and expenditure, existing credit contracts and information from the consumer's credit report. |
| Taking reasonable steps to verify information collected | Licensees are required to take reasonable steps to verify the information collected, and RG209 Table 1 outlines the type of evidence which can be used to verify a consumer's information. | Licensees are still required to take reasonable steps to verify
information. There are mandatory factors which are required to be considered as part of reasonable inquiries. These factors are designed to lower the scope and intensity of the inquiries. |
| Assessment that the contract is not unsuitable | Licensees must make an assessment that the credit contract is not unsuitable for the consumer, and are prohibited from entering into a contract that is unsuitable. Refer to Section C of RG209. | Licensee are still required to make an assessment, but there
are rebuttable presumptions that apply to LCCCs of $2000 or less.
These LCCCs are presumed to be not unsuitable in terms of meeting
the consumer's requirements and objectives for the purpose
of: " Assessing whether the LCCC is unsuitable; " The prohibition of entering into an unsuitable LCCC No presumption exists for assessing whether the consumer would be able to comply with their financial obligations, or could only comply with substantial hardship. An assessment is required in relation to these items. |
| Unconditional Representations | Licensees must not make unconditional representations about a consumer's eligibility to enter into a credit contract, without having first conducted an assessment. | This does not apply to LCCCs. |
| Provide a copy of the assessment to the consumer | Licensees must provide a written copy of the assessment upon request and free of charge. | Licensees must provide a written copy of the assessment upon request and free of charge. |
| Time limits | Licensees must undertake inquiries, verifications and make an assessment within 90 days of the day the contract is entered into. | The time limit for LCCCs has been extended to 120 days. |
| Unsuitability Assessment Policy | Not required | Licensees must elect to adopt the modified responsible lending obligations and must implement an Unsuitability Assessment Policy. |
BNPL providers who will elect to apply the modified responsible lending obligations will need to:
- Review ASIC's Regulatory Guides 281 and 209;
- Make an election in writing to apply the modified responsible lending obligations for either all LCCCs, or select classes of LCCCs it issues;
- Review it procedures for collecting information from consumers
about:
- Requirements and objectives in applying for a LCCC;
- Financial situation;
- Determine which evidence and documentation will be required to be provided by consumers in order to verify their information and how this will be collected;
- Consider their assessment procedures, including record keeping obligations, to ensure that no LCCC is entered into unless it has been assessed as not unsuitable for the consumer.
Further Reading
Sophie Grace blog – BNPL moves into the credit licensing regime
Unsuitability Assessment Policy
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
