The Australian Finance Industry Association (AFIA) has launched an independent review of its own buy now, pay later Code of Practice, stress-testing the self-imposed rulebook as the federal government mulls tighter regulation over the booming sector.
Drawn up with the help of industry participants like Afterpay, Zip, and Klarna, the Code of Practice is a set of opt-in rules designed to set minimum standards within the BNPL sector.
The code describes nine key commitments, including clear communication around fees and surcharges, assessing whether BNPL services are appropriate for new customers, and additional in-house checks for new customers processing transactions greater than $2000.
The code came into effect in March 2021, after the booming BNPL sector came under scrutiny from both the Australian Securities and Investments Commission (ASIC) and the Senate Economics Reference Committee.
That regulatory interest raised the possibility of BNPL providers coming under the banner of traditional credit regulation.
BNPL providers are currently exempt from the National Consumer Credit Protection Act, which prescribes rules for banks and other lenders offering home loans, personal loans, credit cards, and leases.
The sector argues that BNPL products are distinct from other loan types, as providers charge ‘service fees’ instead of interest.
But consumer advocates have long called for the BNPL sector to come under those same rules, arguing that users can still be exposed to significant financial harms through BNPL services.
The introduction of the code, which “describes contractually enforceable commitments” operating “alongside” existing laws, has served as something of a regulatory middle ground since its introduction.
However, the Albanese government has repeatedly signalled that it intends to bring the BNPL sector under the act, meaning the sector is once again looking to bolster its self-regulatory framework, and prove the sector is capable of maintaining customer safety without further regulation.
“AFIA believes industry-led self-regulation has an important role to play and can be responsive to technological changes, shifts in market and economic conditions, and importantly, changes in customer expectations,” AFIA CEO Diana Tate said Friday.
“The review will enable the code to be assessed against these developments.”
The review will be helmed by Peter Kell, managing director of Promontory Australia and former ASIC deputy chair.
A report on the review’s findings is due March 1, 2023.
Interested parties are now invited to submit their views.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
