Time to apply ‘buy now, pay later’ code of conduct to all

The voluntary Code of Conduct applying to “buy now, pay later” providers (BNPLs) that are members of the Australian Finance Industry Association (AFIA) should be made mandatory for all BNPLs to better protect vulnerable consumers.

New figures from Similarweb, a web analytics company which measures website traffic, show the volume of traffic to the sign-up pages of BNPL providers in Australia has grown by 63 per cent since September 2019.

The continued growth of the sector “seems to suggest the purchasing habits developed during the 2020 lockdowns have stuck,” says Emmanuel Heymann, area vice president for Australia, New Zealand and Southeast Asia at Similarweb.

Rules to better protect consumers should be in place for all buy now, pay later providers.Credit:Louie Douvis

“The shift to e-commerce during all those months of lockdown greatly accelerated the adoption of BNPL,” he says.

Last month, consumer groups from nine countries including the United States and Britain joined Choice, the Australian consumer group, in making a joint call for regulation of the BNPL sector in the same way as other forms of credit are regulated.

This includes ensuring that measures applying to other credit providers under credit laws, such as caps on fees and charges, restrictions on unsolicited marketing and obligations for providers to help those in financial hardship, are extended to BNPLs.

While BNPL business models differ, they all allow purchases to be made immediately, with the money repaid to the provider, in most cases, in four equal instalments.

Most earn their revenue from fees paid to providers by merchants and from the fees paid by consumers who miss a repayment.

Alan Kirkland, the chief executive of Choice, says BNPLs can be a “fast path to extreme financial hardship”. In some cases, people spend years trying to pay back debt they have signed up for in minutes, he says.

The Australian Securities and Investments Commission (ASIC) also shares the concerns of consumer groups that BNPLs can become debt traps, particularly for low-income households, by providing credit that looks easy but is ultimately unaffordable.

BNPLs are licensed and regulated by ASIC, but are not regulated under the National Credit Act, which requires assessments of the borrowers’ capacity to repay loans and for licence holders to be members of the Australian Financial Complaints Authority (AFCA), which provides consumers with free access to dispute resolution.

Afterpay, Brighte, Humm, Klarna, LatitudePay, Openpay, Payright and Zip are signatories to the BNPL code of conduct, operated by the AFIA, which represents 95 per cent of the BNPL market in Australia by transaction volume.

Signatories are required to make upfront and ongoing assessments of their customers’ suitability for the product, including the ability to repay.

BNPL members of the Association are also members of AFCA and are required to have limits on how much can be paid in late fees and to have internal dispute resolution processes and programs to help customers experiencing financial hardship.

Membership of AFIA is voluntary. If is good enough for the BNPL members of AFIA to abide by its Code of Practice, it should be good enough for all BNPLs – more of whom are popping up all the time.

Making the AFIA’s Code of Practice mandatory for all BNPLs in Australia and enforced by ASIC would be the quickest route to increasing consumer protections in a sector whose growth shows little sign of abating.

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