Stop order on lender revoked after 24hrs: ASIC

The Australian Securities and Investments Commission (ASIC) made an interim stop order against Humm BNPL Pty Ltd (Humm) on 25 May 2023. The order prevented Humm from issuing its buy now, pay later (BNPL) product due to deficiencies in its target market determination (TMD).

However, ASIC revoked the order a day later (26 May) after immediate corrective action was taken by Humm to address the design and distribution obligation (DDO) deficiencies identified by the regulator.

The stop order intervention and corrective action was an outcome of ASIC’s recently completed targeted review of BNPL compliance with their DDOs.

Humm was prohibited from issuing its BNPL product for a period of 21 days after the order was made or until the order was revoked.

Its BNPL product allows consumers to borrow up to $2,000 for “Little things” and $30,000 for “Big things”, according to ASIC. This included access to a feature allowing consumers to use the product to defer the payment of bills.

The regulator’s concern over Humm’s TMD came from the lender failing to define the target market, only excluding a narrow subset of consumers who may find it difficult to make payments.

Furthermore, Humm did not specify details about the bill payment feature of the product or the financial situation of consumers who intended on using this feature, thus making the TMD deficient, according to ASIC.

Secondly, the TMD didn’t contain appropriate distribution conditions to guarantee that the BNPL product was directed towards the target market, for example, it did not contain details of how Humm, or its distributors, would assess whether a consumer meets the product’s eligibility criteria.

Lastly, ASIC was concerned that Humm’s TMD lacked specific review triggers to monitor consumer outcomes in regard to consumers missing payments.

Humm has since removed the bill payment feature and addressed its TMD by defining its target market; providing more clarity on how the lender and its distributors determine whether a consumer meets eligibility requirements; explaining Humm’s systems; and clearly defining who is excluded from using the product.

BNPL regulated under Credit Act

The Financial Services Minister and Assistant Treasurer, Stephen Jones MP, confirmed that the government will change the law, so that BNPL products are regulated as credit products.

The Treasury confirmed it is adopting ‘Option 2’ of its recent options paper on regulating the buy now, pay later (BNPL) sector and will be introducing legislation that will require BNPL providers to:

• Hold Australian credit licences
• Comply with responsible lending obligations
• Meet statutory dispute resolution and hardship requirements
• Comply with statutory product disclosure and other information obligations
• Abide by existing restrictions on unacceptable marketing
• Meet a range of other minimum standards in relation to their conduct and products

[RELATED: BNPL to be regulated under credit act]