New Code Of Conduct For Buy Now, Pay Later Services

In a code of practice set to be released today, new and disruptive delayed payment providers including Zip Co and Afterpay will commit to safeguards – including capping late fees, screening customers’ ability to repay and never initiating bankruptcy procedures.

The Australian Financial Industries Association, which represents companies in the sector, described the code as a ‘world first.’ The body also said customers who find themselves assessed as vulnerable could see them rejected from the finance services.

It comes after scrutiny from the Australian Securities and Investments Commission (ASIC) and a Senate committee forced the sector to introduce a code of conduct to prevent the possibility of stricter government regulation.

Association chief executive Diane Tate told The World Today the financial services wanted to eliminate irresponsible practices and protect vulnerable customers.

An Afterpay sign is seen in a store window in a shopping centre in Sydney, Tuesday, February 26, 2019. (AAP Image/Derek Rose) NO ARCHIVING

‘We have heard criticisms that young people could lose control of their spending, so the code includes a clause which says buy now, pay later products won’t be available to people under 18,’ Tate said.

‘There is another area of concern, which is about people getting over-committed, [so we’re] doing upfront assessment to make sure the customers are suitable for the product. And another area which is really important in this code also is putting in a cap on late fees.’

The sector is regulated by ASIC under the ASIC Act, which covers misleading and deceptive conduct, unfair contracts and privacy.

Tate admitted that pressure from both ASIC and the Senate inquiry was a catalyst for the industry agreeing on improving practice standards.

If there is a breach of conduct, for example, the customer may be refunded.

In addressing concerns about self-regulation for the sector, Tate said members who breach the code could face sanctions from an independent committee.

‘The Code Compliance Committee can take action against a buy now, pay later provider for not meeting the standards within the code… That can be issuing a warning, through to quite formal actions and, where there has been wrongdoing, to remediate the customers,’ Tate said.
But not everyone is as assured as Tate, with Consumer Action Law Centre chief executive Gerard Brody stating an industry code was not a replacement for an effective regulatory system.

‘We know that a key problem in the buy now, pay later market is over-commitment and hardship,’ Brody told ABC News.

**FILE IMAGE**
Zip signage is seen on a storefront in Sydney, Tuesday, October 22, 2019. By the end of December 2019, 1.8 million customers had an active Zip account that allows them buy now and pay later without a credit card at 20,875 merchants, including Amazon Australia. (AAP Image/Derek Rose) NO ARCHIVING

‘ASIC research found that one in six users are financially over-committed. It’s not clear the code deals with this, we find that some people prioritise repayment over buy now, pay later, so they don’t get kicked off the app, but default on other obligations.’

Brody also said that loopholes existed in the draft code of conduct, such as providers not being obliged to check the income, expenses or other debts of the borrower.

But the industry insists that its working towards a better culture.

The rapidly growing delayed payments sector was only in its infancy during the royal commission into financial services in 2018, but Tate said new players had behaved based on examples of unethical practices from traditional lenders.

Tate also said the entire financial services industry needed to ensure the culture is a reflection of community expectations.

The draft code will be subject to a six-week consultation period but all seven providers have already agreed to enforce the new standards.