On 5 February 2025, the Australian Government (via the Department of Treasury) released an exposure draft on the National Consumer Credit Protection Amendment (Low Cost Credit) Regulations 2025 (draft Regulations). The draft Regulations follow the recent introduction of the Treasury Laws Amendment (Responsible Buy Now Pay Later and other Measures) Act 2024, which will see Buy Now Pay Later providers regulated as ‘low cost credit contract’ (LCCC) providers under the National Consumer Credit Protection Act 2020 (National Credit Act) from 10 June 2025.

Shortly afterwards on 7 February 2025, ASIC released a consultation paper (CP 382) seeking feedback on a draft Regulatory Guide (Draft RG). The Draft RG aims to support LCCC providers in understanding key obligations under the National Credit Act and accompanying draft Regulations.

As set out in the draft Regulations, LCCC providers will soon be obliged to:

1. Prepare Unsuitability Assessment Policies

LCCC providers will have to prepare and follow an ‘unsuitability assessment policy’ to assess the suitability of credit contracts and credit limit increases for each consumer.

To this end, LCCC providers will be required make reasonable inquiries and verification as to the objectives and financial situation of a consumer (including income, expenses and credit history) within an extended period of 120 days prior to contracting.

2. Adhere to ‘Fee Period Caps’

LCCCs will be subject to ‘fee caps’ on the amount chargeable to consumers over a 12-month period for a credit contract to be considered a LCCC. A cap of $200 in the first year is proposed, excluding default fees (which are also proposed to be capped).

These caps will apply in aggregate across all LCCCs between a credit provider and each debtor, to protect consumers from high fees or charges.

3. Elect to Comply with Modified Responsible Lending Obligations

The draft Regulations impose modified responsible lending obligations, tailored to the lower risk posed by smaller loans. Lenders will still need to make reasonable inquiries and take reasonable steps to verify the borrower’s situation, though the scope of what is required is reduced. The regulations contain a list of mandatory information which needs to be collected for each LCCC, as well as additional information required only for LCCCs above $2,000. The modified obligations also include a rebuttable presumption that LCCCs with a credit limit of $2,000 or less will be ‘not unsuitable’ to meet the consumer’s requirements and objectives, negating the need for an unsuitability assessment by the credit provider.

Draft RG clarifies that LCCC providers may either elect to comply with these modified obligations, or otherwise be subject to the standard responsible lending obligations as will still apply to all other non-LCCC credit contracts.

Treasury invites feedback on the draft Regulations until 12 February. ASIC invites feedback on Consultation Paper 382 to rri.consultation@asic.gov.au by 7 March 2025. It is anticipated that the final Regulatory Guide will be released in the second quarter of 2025.

Madison Jeffreys and Mackenzie Brown also contributed to this article.