Buy Now, Pay Later (BNPL) services have rapidly expanded from financing clothes and gadgets to now covering everyday purchases like takeaway food. This global trend recently saw food delivery giant DoorDash partner with BNPL provider Klarna in the US, allowing customers to pay for meals in four interest-free instalments.
While convenient for some, the move to finance fast food sparked immediate debate and even social media memes questioning the need to pay over months for a small order. Critics, including financial advisors and even Klarna’s CEO, labelled the practice “unwise” and a potential “awful trap,” warning against using BNPL for discretionary, low-value items.
Concerns are mounting that this expansion, coupled with rising delinquency rates reported by some BNPL firms, could lead consumers into debt spirals, especially if they use BNPL for essential purchases. Data from Australia supports this concern, with financial counsellors reporting that a significant majority of clients commonly use BNPL for necessities like food, fuel, and utilities, contributing to an increasing number seeking help for BNPL debt.
Australia’s New Regulatory Framework
In response to the growing use and associated risks of BNPL, Australia has introduced a new regulatory framework. As of June 9, 2025, BNPL products are officially regulated as a form of credit under the National Consumer Credit Protection Act, specifically as ‘low cost credit contracts’ (LCCC).
This marks a significant shift, bringing BNPL providers under stricter oversight previously reserved for traditional lenders.
What the New Rules Mean for BNPL Users
The aim of the new legislation is to strike a balance: provide stronger consumer protections while allowing continued access to BNPL services. Here’s how the regulations are designed to protect users:
Credit Licensing: BNPL providers must now hold an Australian credit license from ASIC, ensuring they operate under a legal framework designed to prevent unlawful or harmful conduct.
Dispute Resolution: Providers must become members of the Australian Financial Complaints Authority (AFCA), giving consumers access to free and independent dispute resolution if issues arise.
Hardship Assistance: Providers are required to give reasonable and timely consideration to requests for financial hardship arrangements from customers facing difficulties.
Fee Caps: Caps will be introduced on the maximum permitted default fees.
- Affordability Checks: Providers must now assess a consumer’s ability to repay the loan. While providers can choose between a full responsible lending obligation (RLO) framework or a modified one, mandatory checks of a consumer’s ability to repay will be required, though the modified framework may not necessitate extensive documentation like bank statements.
Expert Views: A Step Forward, But Is It Enough?
Consumer advocates largely support the new regulations, hailing them as an “absolutely the right step forward” that treats BNPL more like other credit products. The mandatory checks and access to hardship arrangements are seen as crucial improvements.
However, some concerns remain that the regulations may be “light-touch” in certain areas. Specifically, critics worry that some protections against unaffordable lending may only apply to loans over $2,000. There are also fears that less stringent checks under the modified framework could still leave consumers vulnerable to accumulating multiple debts with different providers or even becoming victims of identity fraud or financial abuse where loans are taken out in their name without consent. Concerns about other unregulated credit products, such as wage advance services, also persist.
Industry Reaction
Australia’s largest BNPL players have publicly welcomed the regulatory changes. Afterpay stated its commitment to transparency remains, reiterating that its model helps customers avoid interest and revolving debt, distinguishing it from traditional credit cards.
Zip, which has held an Australian credit license since its inception, confirmed it has long advocated for fit-for-purpose regulation and already conducts ID, credit, and affordability checks. Both companies expressed confidence in meeting the requirements of the new framework and continuing to offer flexible payment options.
While the expansion of BNPL into areas like food delivery highlights its pervasive presence, Australia’s new regulations aim to build a stronger safety net for consumers navigating the “buy now, pay later” landscape.
