Legal Protections for BNPL Borrowers in Australia – Your Rights & How to Negotiate Tax Debts

When buy now, pay later (BNPL) products first appeared, they were marketed as a simple, interest‑free alternative to credit cards. Millions of Australians have embraced Afterpay, Zip Pay and Klarna for everyday purchases – often without realising the legal protections and obligations that accompany these services. If you’ve fallen behind on BNPL repayments or feel trapped by overlapping debts, you’re not alone. Recent law reforms mean you now have stronger rights and avenues for relief. Here’s what every BNPL borrower should know.

Why Legal Protections Matter

BNPL debt can spiral quickly. Because instalments feel smaller and are deducted automatically, it’s easy to lose track of multiple orders. When you combine this with rent, utilities, credit cards and personal loans, cash flow becomes unpredictable.

From 2023–2025 the Australian Financial Complaints Authority (AFCA) reported a surge in BNPL complaints. Many consumers said they had been approved for multiple accounts despite being in hardship; others said they weren’t told about late fees or default listings. This feedback prompted regulators to step in. As of 10 June 2025, BNPL providers must adhere to the same laws as other credit providers – including licensing, responsible lending and hardship assistance.

New BNPL Regulations: Credit Licensing & Responsible Lending

BNPL providers must hold an Australian credit licence

Under reforms to the National Consumer Credit Protection Act, anyone engaging in BNPL contracts must hold an Australian credit licence by 10 June 2025. Licensees must:

• Be authorised to provide BNPL contracts.
• Comply with responsible lending obligations.
• Become members of AFCA for external dispute resolution.
• Have appropriate dispute‑handling and hardship‑assistance frameworks.

Transitional arrangements allow existing providers to continue operating while their applications are assessed. This means Afterpay, Zip Pay, Klarna and other BNPL platforms must be licenced and regulated – they can no longer operate outside the credit system.

Responsible lending applies to BNPL

Financial Rights Legal Centre notes that BNPL companies must follow the same laws as other credit providers from June 2025. Responsible lending means providers must:

• Ask reasonable questions about your income, expenses and financial goals.
• Take steps to verify the information you give them (e.g., bank statements).
• Assess whether the contract is suitable for you (it shouldn’t leave you in hardship).
• Refuse to approve a contract if repayments are likely to cause substantial hardship.
• Explain fees, late charges and the consequences of missing a payment.

These rules are designed to prevent multiple approvals and ensure BNPL is only used when affordable. They also support fairness for young people and low‑income borrowers who were previously targeted by aggressive marketing.

Caps on fees and interest

Unlike credit cards, BNPL products don’t charge interest. However, late fees and account fees can accumulate quickly. The BNPL Code of Practice and new regulations cap total fees at $320 in the first year and $245 in subsequent years. Providers must inform you of these caps and cannot impose hidden charges.

Financial hardship assistance

If you fall behind on BNPL repayments, you have the right to request a hardship variation. From June 2025, BNPL providers must work with customers experiencing financial difficulty and consider solutions such as:

• Pausing or reducing repayments.
• Waiving or refunding late fees.
• Extending the repayment period.
• Offering a settlement figure for the outstanding balance.

Providers must respond to hardship requests within a reasonable time and cannot charge you for seeking assistance. They must also refrain from adding new fees while your request is being assessed.

Your Right to Dispute and Complain

AFCA membership and dispute resolution

All BNPL providers must now be members of the Australian Financial Complaints Authority. If you’re dissatisfied with a provider’s response to your complaint (for example, they continue to debit your account after you’ve cancelled your order), you can lodge a free complaint with AFCA. This independent body can investigate and, if necessary, require the provider to refund fees or change repayment terms.

Access to your data

Under the new regulations, providers must give you access to your transaction history and personal data on request. This helps you review your spending and identify errors. They must also explain how your information will be used (e.g., credit reporting) and cannot sell it without consent.

Clear communications and marketing

Providers must present terms and conditions in plain English, avoid misleading marketing and ensure that late fees and default consequences are clearly displayed before you confirm a purchase. Push notifications and emails must remind you of upcoming payments and warn if a payment fails. You have the right to opt out of marketing communications.

BNPL and Your Credit Score

Many Australians mistakenly believe BNPL won’t impact their credit file. That’s changing. Under responsible lending rules, providers may perform credit checks to assess your ability to repay. If you default on a payment (over $150 and more than 60 days overdue), the provider can report it to credit bureaus – harming your score. The Financial Rights Legal Centre emphasises that BNPL companies must conduct appropriate credit checks and warn you if non‑payment could affect your credit file.

What if you already have defaults?

You might worry that a BNPL default or other debts have ruined your credit. Remember:

• A default remains on your credit report for five years even once it’s paid off.
• Paying the debt will mark the default as settled, which looks better to lenders than an unpaid default.
• You can rebuild your score over time by meeting future obligations and limiting new applications.
• Credit repair agencies cannot remove accurate defaults, so be cautious of expensive “credit repair services” promising to erase legitimate information. Instead, focus on repayment and financial counselling.

BNPL vs. Tax Debts & Negotiation

BNPL obligations often overlap with other debts. Many small business owners use BNPL to manage cash flow and then struggle with tax debt. It’s vital to understand how BNPL fits with broader debt management.

ATO payment plans and negotiation

If you owe the Australian Taxation Office (ATO), you can request a payment plan or lodge a tax debt negotiation. The ATO often allows installment arrangements based on your financial capacity. Unlike BNPL providers, the ATO may charge general interest but will cancel penalties if you engage early. The sooner you contact them, the more flexible the options.

For businesses under financial stress, the Small Business Restructuring process allows eligible companies to propose a plan to creditors (including the ATO) and continue trading while debts are resolved. This can include BNPL debt if it’s used for business purchases. Speak to a registered restructuring practitioner or financial counsellor to see if this fits your situation.

Director guarantees and personal liability

If you’re a company director who signed a director guarantee for BNPL or other business finance, you may be personally liable for the debt. If the company can’t pay, creditors may pursue your personal divisible property. Legal protections vary by state, but generally you can negotiate repayment, seek insolvency advice or apply for a personal debt agreement to avoid bankruptcy. Understand your obligations before using BNPL for business expenses.

State‑Based Protections & Support

Australia’s states and territories sometimes offer additional protections. Here are examples:

• New South Wales (NSW) – Revenue NSW allows people in fines or penalty debt to set up payment plans, preventing enforcement such as licence suspension provided you keep to the installments.
• Queensland (QLD) – The State Penalties Enforcement Registry (SPER) offers installment plans and pausing of enforcement once accepted.
• Victoria – Fines Victoria allows you to combine multiple fines into a single installment plan and assesses your financial circumstances before approving.

While these examples relate to fines, they illustrate a wider principle: government agencies and lenders are required to offer reasonable payment arrangements and cannot continue enforcement while you’re negotiating in good faith.

How to Use Your Rights Effectively

1. Keep records and communicate early

Maintain copies of your BNPL transactions, email correspondence and any hardship requests. If you know you can’t make a payment, contact the provider before the due date. Be honest about your circumstances and propose an amount you can afford.

2. Request written confirmation

Whether negotiating a hardship variation or disputing a fee, ask the provider to confirm the agreement in writing. Under ASIC’s guidelines, providers must send a written notice outlining any changes or outcomes.. Keep this documentation safe.

3. Escalate to AFCA if necessary

If you’re not satisfied with the provider’s response or they refuse a reasonable payment plan, lodge a complaint with AFCA. There is no cost, and AFCA can enforce fair outcomes. You can also seek help from a financial counsellor or legal service.

4. Consider formal debt solutions

If BNPL debt is part of a broader debt problem, a Part IX Debt Agreement (informal restructure of unsecured debts) may offer relief. Once accepted, a debt agreement freezes interest on unsecured debts and consolidates them into a single affordable payment. Under the Bankruptcy Act, creditors must stop collection and cannot garnish wages. However, a debt agreement remains on your credit file for five years and should be considered carefully.

Frequently Asked Questions (FAQs)