Fee caps urged under buy now, pay later code of practice

Consumer advocates want more clarity on fee caps and credit assessments in a proposed buy now, pay later code of conduct.

Klarna CEO Sebastian Siemiatkowski. Picture: Adam Yip

Consumer advocates want more clarity on fee caps and credit assessments in a proposed code of practice for buy now, pay later providers.

The Australian Finance Industry Association (AFIA) has closed submissions for its draft buy now, pay later (BNPL) code of practice, which would stipulate lender responsibilities in the sector.

The world-first draft code comes amid growing calls for greater consumer protection in the industry, following concerns about pushing younger consumers into more debt with few or no credit checks, and charging high late fee payments.

AFIA chief executive Diane Tate said responses to the draft code showed general consensus that fees should be “fair and capped”, and that BNPL products should only be offered to people 18 years and older.

“BNPL providers are proactively setting a best practice standard in direct response to areas identified as potential risks to consumers, while preserving customer choice to make purchases and payments in a way that suited their needs,” Ms Tate said.

Upfront credit checks and industry-wide fee cap limits have been flagged for further areas of discussion.

Consumer advocate groups which have provided submissions want the sector to be subjected to responsible lending laws, under the credit act.

A federal Senate inquiry is looking at whether the fintech sector needs further regulation.

Ms Tate said an agreed industry-wide fee cap would need approval from the Australian Competition and Consumer Commission, as a fee limit agreed between companies would be interpreted as anti-competitive.

“BNPL providers must comply with a range of consumer protection laws, including the ASIC Act prohibitions against misleading or deceptive conduct as well as the unfair contract terms provisions,” Ms Tate said.

“ASIC also has a new product intervention power which it could use to take action against a BNPL provider if the product offered is determined to raise risk of consumer harm.”

Commonwealth Bank-backed new entrant Klarna has recently become an AFIA member, agreeing to operate in Australia under the prospective code.

The Swedish fintech’s entry to the Australian market followed growth in digital lay-by payments, spurred on by local companies such as Afterpay and Zip.

After delays due to COVID-19, AFIA hopes to implement the code of practice in January 2021.

“Despite the delay in launch date, our BNPL members are bringing forward best practice standards by already introducing many of the commitments in the new code, including having accessible hardship programs, membership of the Australian Financial Complaints Authority, and ensuring that customers do not spend more if they miss a payment,” Ms Tate said.

AFIA noted it is also seeking to impose clauses prohibiting the use of BNPL schemes to buy weapons or gamble.