Ann: Receipt of ASIC interim stop order, page-19

This is ASIC"s note in 2020

Design and distribution obligations
From October 2021, design and distribution obligations will apply to most products that ASIC
regulates, including buy now pay later arrangements.
Note: See the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019
(Product Regulation Act) and ASIC Consultation Paper 325 Product design and distribution obligations (CP 325). The design
and distribution obligations are set out in Pt 7.8A of the Corporations Act 2001 (Corporations Act).
© ASIC November 2020 | REP 672 Buy now pay later: An industry update 21
The design and distribution obligations in Pt 7.8A of the Corporations Act require issuers of
products to identify in advance the class of consumers for whom their products are appropriate,
and to direct distribution to that target market, through a target market determination.
In defining a target market for the product, the issuer will need to consider whether the product
and its key attributes are likely to be consistent with the likely objectives, financial situation and
needs of consumers in the target market. The issuer will also need to specify conditions and
restrictions in the determination which make it likely that the product will reach its target market.
Issuers will need to keep records of their decisions in preparing the determination, including the
reasons (and underlying data) for those decisions.
Issuers and distributors are required to take reasonable steps that will, or are reasonably likely to,
result in distribution of the product being consistent with the determination. Issuers are required to
regularly review the determination both on a periodic basis and in response to events or
circumstances that reasonably suggest that the determination is no longer appropriate. Distributors
are required to keep records and report certain information to the issuer, including information
specified in the determination, so it can be promptly reviewed as necessary.
We consider that buy now pay later providers will use resources such as industry knowledge,
information about their users (including past outcomes) and other data in defining the target
market for their particular buy now pay later arrangement. We also think issuers will use these
resources in setting distribution conditions in the determination and in considering the reasonable
steps that are likely to result in distribution of the arrangement being consistent with its target
market. Factors that are relevant to how an arrangement is distributed could include how key
attributes of the arrangement are marketed and the sales practices that are adopted.
Importantly, buy now pay later providers must monitor and review the outcomes of their
arrangement and consider whether changes are required to the arrangement itself, to the way it
is sold, and to whom it is being sold.
Our review highlights that while buy now pay later arrangements have been embraced as a way to
make purchases more affordable, some consumers are missing payments, paying missed payment
fees and struggling to meet other financial commitments.
Where providers offer retail consumers buy now pay later arrangements that are designed and
marketed as offering cost-free, or low-cost, access to deferred payment, this should form a
central consideration for the provider in terms of their design and distribution obligations.
If the buy now pay later provider’s data indicates that consumers are paying missed payment
fees repeatedly, for example, or that these fees represent a significant proportion of the amount
borrowed, the provider will need to consider why this is occurring (e.g. whether the arrangement
is being inappropriately distributed) and how this can be addressed (e.g. by amending the target
market for the arrangement or improving the controls in the distribution process).
Similarly where buy now pay later arrangements are designed and marketed to consumers as
providing the ability to access deferred payment without affecting the price of the goods
consumers are acquiring, this will also be a central consideration for the provider in terms of their
design and distribution obligations.
If the buy now pay later provider’s data indicates that accessing this arrangement does affect
the price of goods—and, for example, this practice is widespread—the provider will need to
consider why this is occurring and how it can be addressed (e.g. whether they can improve their
controls) to continue to offer this feature