Afterpay, Zip Co get in first with code of practice

Buy now, pay later outfits Afterpay, Zip Co and Latitude Financial are to sign up to a world-first code of practice.

The code ‘spells out minimum standards of how firms in the BNPL sector should conduct their business’, says Zip Co co-founder Peter Gray. Picture: AAP.

Buy now, pay later outfits Afterpay, Zip Co and Latitude Financial are to sign up to a world-first code of practice that will spell out their responsibilities to consumers.

The BNPL code of practice, outlined in draft form by the Australian Financial Industry Association, comes after the Senate economic reference committee urged the sector to put together a blueprint detailing ­appropriate practice for buy now, pay later products.

The industry has come under scrutiny for pushing younger people into high levels of debt payments, with little to no credit checks, and raking in revenue from late fees.

Speaking to The Australian, AFIA boss Diane Tate said the standards would prompt BNPL providers to have stronger upfront ­assessments of their products and whether they are appropriate to specific consumers. “The industry has deliberately come together to set a regime for itself and it has not been done anywhere else in the world,” Ms Tate said.

Under the terms of the draft code, BNPL services cannot push customers into positions of financial hardships, including not initiating bankruptcy proceedings or referring customers to third-party debt collectors.

They will also not be allowed to charge late fees to customers who have flagged a situation of financial hardship, with a cap on late and default fees.

Meanwhile, customers will be barred from products if they have defaulted on repayment obligations and will not be able to access the service until the payment has been cleared.

The code also mandates minimum age requirements of 18 years and older for all BNPL services as part of its upfront assessment.

Consumers will also have ­access to make complaints against BNPL members through the Australian Financial Complaints Authority and breaches of the code can be reported to the Code Compliance Committee.

“This code is intended to set standards higher than the law and therefore provide consumer protections, while fostering competition and innovation,” Ms Tate said.

“There are upfront assessment product limitations and then hardship assistance protections at the back end to ensure vulnerable customers are not exposed to spending too much.”

The largest local BNPL providers, including Afterpay, Zip Co, Latitude Financial and Brighte, hold AFIA membership.

Afterpay chief executive ­Anthony Eisen said the code would play an important role in “enshrining” consumer safeguards in the emerging industry.

“As the pioneer of this sector, Afterpay has been a longstanding and strong advocate of an industry code of practice that is focused on achieving the best outcomes for customers,” he said.

Meanwhile, Zip Co co-founder Peter Gray said the company would be seeking to include more “robust” consumer focus standards, including identity and ­credit checks.

“Zip welcomes this code ­because it spells out minimum standards of how firms in the BNPL sector should conduct their business,” he said.

Ms Tate said the implementation of the code would help drive an emerging industry culture instilled with “integrity, transparency and fairness”.

The code will now enter a six-week consultation phase with rules expected to be implemented by the next financial year.