AFIA's Buy Now Pay Later code of conduct comes into effect

The Australian Finance Industry Association (AFIA ), a leading advocate for the Australian financial services industry, announced that it is formally launching a code of conduct for the Buy Now Pay Later (BNPL) sector, effective on 1 March 2021, aiming to to codify a range of existing practices to ensure a minimum standard across the industry, while pushing all BNPL providers to improve monitoring of existing customers.

The code of conduct, which the AFIA says is a "world-first" for the BNPL sector, has been prepared in consultation with Australian Securities and Investments Commission (ASIC) and drafted by BNPL providers under AFIA's guidance.

The providers involved in drafting the code represent over 95 percent of the BNPL market, including Afterpay, Brighte, Humm Group, Klarna, Latitude, Openpay, Payright and Zip Co.

"We cannot comment in detail on what each one does and the changes they have made as part of the accreditation process," said Diane Tate, Chief Executive of the AFIA. "But we do understand that, when looking at the initial assessment, the ongoing monitoring, complaint handling, hardship and collections, they have all had to make changes to ensure they will be compliant."

The code is a direct response to ASIC's review of the BNPL sector, which found 21 percent of BNPL customers had missed a payment with some of them skipping meals to pay their bills.

Under the code, interest-free loans above AUD 2000 will require more checking, using customer information or credit bureaus as data sources. These checks will be more stringent when loans are sought for purchases above AUD 15,000.

Under the code, operators must ensure customers can make their first payment upfront, and BNPL providers will be prohibited from offering services to minors and allowing additional purchases when a customer is already late on any repayment.

Under the code, BNPL providers also have to commit to setting up processes for customer complaints and to not initiate bankruptcy proceedings against customers.