Buy now pay later industry agrees to new standards
95% of the industry including Afterpay, Zip and Latitude have developed the new code.
Australia's buy now pay later (BNPL) sector has come together to develop a code of practice to set better standards for the industry. The code, which was developed by Afterpay, Brighte, flexigroup, Latitude, Openpay, Payright and Zip Co under the guidance of the Australian Financial Industry Association (AFIA), will go "beyond the law" to provide customers safeguards from the burgeoning industry.
"BNPL providers are not unregulated, they already comply with numerous laws that protect customers," said AIFA CEO Diane Tate.
"However, this draft code goes above and beyond existing laws by increasing safeguards for customers, including upfront assessment of customers to ensure the product will be suitable for them, product limitations to ensure customers don't over-commit, and access to AFCA's external dispute resolution scheme."
The code was developed in response to a review of the sector by the Australian Securities and Investments Commission (ASIC) in November 2018, which highlighted some potential risks for consumers using BNPL products. The review found one in six users had their accounts become overdrawn, borrowed additional money or delayed paying other bills to cover their BNPL payments.
To better protect customers, the code requires that BNPL providers make sure customers can afford the product and that it's suitable for them before providing it. Providers will also need to monitor their products and services to make sure they remain suitable for customers.
The draft code also requires providers to cap their fees and "keep them fair" and give at least 40 business days before introducing new or existing fees. The code prohibits providers from initiating bankruptcy proceedings against customers and also requires them to provide hardship assistance to customers experiencing financial difficulty. Customers using the BNPL services of any provider signed to the code will also have access to an external dispute resolution scheme.
"Approximately 30% of Australian adults (5.8 million) now use BNPL services, so this is a good time for the industry to develop an industry code to set the standards and drive good practices," Tate said.
A Code Compliance Committee (CCC) that is independent of the AFIA and BNPL providers will be established to assess compliance standards and enforce the code.
The code is currently open for a six-week public consultation closing 11 March 2020. The AFIA aims to have the code live by 1 July 2020. You can see the code in full and find out how to make a submission here.