The Block Inc (ASX: SQ2) share price and Zip Co Ltd (ASX: ZIP) share price are both down on news of buy now, pay later credit regulation.
Buy now, pay later to be regulated
According to reporting by the ABC and other media outlets, the Australian federal government will “regulate the buy now, pay later industry under the Credit Act to better protect consumers against financial abuse by the lending schemes.
Buy now, pay later services will be treated as a credit product, with providers required to have a credit licence, hardship requirements and minimum standards for conduct.
Two other options that the government were considering included that BNPL remained largely self-regulated, or that the services be subject to the same laws as credit card providers.
Why regulate?
The Financial Services Minister Stephen Jones believes that tougher regulation is needed because it posed “growing dangers to consumers, which up until now have been largely unregulated and unchecked” and that this plan will “protect people from the spirals of harm that unregulated, unrestricted lending can cause.”
According to Jones, some people have opened multiple BNPL accounts and access far more debt than they’d be able to get on a credit card or payday loan.
The ABC reported that Mr Jones said: “BNPL looks like credit, it acts like credit, it carries the risks of credit.”
What will some of the changes be?
BNPL providers in Australia will need to ensure they have “appropriate safeguards” such as better dispute resolution processes. There will also be caps on charges for missed payments and new marketing requirements.
Mr Jones said:
We must ensure that they operate honestly, efficiently, and fairly, in line with other regulated credit products.
Further details will be developed over the coming months.
Final thoughts on the BNPL situation
I don’t think it’s surprising that the Block share price and Zip share price are down today. The ASX 200 (ASX: XJO) is down for starters. And regulation may slow growth of the companies involved, so that wouldn’t be helpful for the valuations.
I’ve never been a big fan of BNPL, and this makes me even less likely to invest in the sector. There are other ASX growth shares that I’d rather invest in.
