The Zip Co Ltd (ASX: ZIP) share price fell to new six-year low today as the federal government flagged new regulations for the Buy Now, Pay Later (BNPL) sector.

The Assistant Treasurer and Minister for Financial Services, Stephen Jones, broke the news in media interviews on a number of platforms.

He said that BNPL services will be regulated as credit products by middle of 2023 as he wants to ensure “guard rails” for the industry.

Zip share price joins peers in the sin bin

The Zip share price declined 2.4% to 62 cents while Block Inc CDI (ASX: SQ2) share price tumbled 6.1% to $109.18 in after lunch trade.

Other players in the space also fell. The Humm Group Ltd (ASX: HUM) share price and Splitit Ltd (ASX: SPT) share price lost over 4% each.

Growing headwinds for ASX BNPL shares

Investors are spooked by the prospect of tighter regulations as that could crimp growth of the industry. ASX BNPL shares don’t need another headwind as escalating interest rates and a slowing economy is already weighing on the sector.

There are fears that bad debts will rise due to the aggressive rate hikes by the Reserve Bank of Australia.

Higher interest rates will also make funding more expensive for the Zip share price, along with its peers.

Quacking like a duck

The sector has long argued that they are not like other credit providers. BNPL products are usually interest free and have short repayment cycles.

But some consumer groups have lobbied the new Labor government to increase legal protection to users.

The Assistant Treasurer said:

We are not interested in having a conversation about whether this particular service is credit or not. If it looks like a duck, walks like a duck, sounds like a duck, it’s a duck – and it should be regulated as a credit product.

The BNPL industry tried to head-off new regulations by developing a code of conduct last year.

Potential silver lining for the Zip share price

While Jones believes that’s a good start, he noted the code was voluntary and that stricter rules were needed.

Stephen Jones added:

We’re talking to the regulators, principally ASIC, and we’re also getting some work done through Treasury on what the appropriate way is to regulate this. A bare minimum is that it operates on a level playing field.

If there is a silver lining, it’s comments from Jones that the laws applying to BNPL won’t be identical to those applied to other debt products, like loans.

Investors will be hoping for the Zip share price’s sake, this means a much more relaxed set of rules for BNPL players.

The post Zip share price hits multi-year low as Assistant Treasurer flags BNPL regulation appeared first on The Motley Fool Australia.

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Motley Fool contributor Brendon Lau has positions in Block, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. and ZIPCOLTD FPO. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Humm Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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