• Australian buy now, pay later darling Afterpay says it is monitoring developments in Europe after the announcement of proposed lending reforms.
• The tweaks, proposed by the European Commission, would apply new oversight to credit products of less than €200 (AU$317.2) and enforce credit checks for modern lenders.
• The announcement comes after the UK revealed BNPL products would face government regulation, while Australia settles for a self-imposed code of conduct.
• Visit Business Insider Australia’s homepage for more stories.

Australian buy now, pay later (BNPL) juggernaut Afterpay is reportedly assessing the impact of credit reforms proposed by the European Union, which could force lenders to conduct stringent checks on borrowers, provide clear product information upfront, and follow new rules for loans of under €200 (AU$317.2).

On Thursday, the European Commission revealed a proposal to reform elements of the 2008 Consumer Credit Directive to align the policies of member states, while adapting to the financial and commercial upheavals of the past 13 years — including the BNPL revolution.

“The digitalisation that has been accelerated by the pandemic, leads to a surge of online shopping and is profoundly changing the financial sector,” Commissioner for Justice Didier Reynders said in a statement. “It is our duty to safeguard consumers, in particular, the most vulnerable ones.”

Proposed amendments include mandatory and upfront product information free of complicated jargon, caps on interest rates or the total cost of credit to a customer, and new assessments of a customer’s ability to repay credit, utilising “necessary and proportionate information on the consumer’s income and expenses and other financial and economic circumstances”.

The reforms also propose a new enforcement system, where serious breaches are punishable by no less than 4% of an lender’s national turnover.

Lawmakers suggest the reforms, if enacted, “would entail a reduction in consumer detriment of around 2 billion [euros] (AU$3.17 billion) in the period 2021-2030.”

The proposed changes have clear implications for Europe’s BNPL sector, which is led by contenders including Swedish ‘unicorn’ Klarna, which covers 24 nations in continental Europe.

And while Afterpay’s operations have so far focused primarily on the US and the UK, any proposed tweaks to the EU’s regulations could shape the $30 billion company’s plans for further expansion.

In a statement obtained by News Corp, an Afterpay spokesperson said the company is aware of the proposed reforms, saying proposals “recognise the importance of proportionate regulation.”

Referencing new guidelines in the UK which bring BNPL products under the watchful eye of the nation’s Financial Conduct Authority, the spokesperson said Afterpay appreciates proposed reforms which delineate between the sector and traditional lending options.

“We also welcome the proposals to protect consumers from exploitative high-interest credit products,” the spokesperson said.

That position on tweaks to European regulation arrives after Afterpay and other heavy-hitters in the domestic sector successfully lobbied for a self-imposed voluntary code of conduct. The non-binding code carries no penalties for breaking any of its rules, nor is it legally enforceable, unlike those reforms being debated overseas.

Australia’s BNPL sector vigorously argues its local honour code will protect customers and their ability to access new lending products, without those same products coming under the direct jurisdiction of the domestic Financial Conduct Authority equivalent, the Australian Securities and Investment Commission.

As a signatory of that code, Afterpay has vowed to conduct third-party credit checks on customers hoping to make large BNPL purchases, provide transparent information on late fees and other payments, and freeze late fees while considering requests for hardship assistance.

In its response to News Corp, Afterpay said European regulators should take the company’s existing practices into account.

With European shoppers standing as a multi-billion dollar prize for the sector, the ramifications of any legislative changes could have massive consequences for the firm on the continent — and in other jurisdictions worldwide, which are also scrambling to assess the risks and benefits of the BNPL industry to a new class of borrowers.

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