In response to a recommendation from a Senate committee in February 2019, and subsequent criticism from the Australian Securities and Investments Commission, the industry developed a code empowering an independent committee to ‘appoint and humiliate’ those that violate the code and impose compensation. . The actors also committed not to initiate bankruptcy proceedings against customers and to put in place customer complaint processes.

However, nothing in the new code will force existing players to do more than they already do in deciding whether to accept a new customer. Afterpay has always rejected the need to perform credit law type customer credit checks and the code does not require it for purchases under $ 2,000.

Gerard Brody, CEO of the Consumer Action Law Center, said the code had many shortcomings, including very complex client assessment provisions.

“The damage is caused by the inability to make repayments, not just the amount of the loan. Small loans can be more damaging, ”he said.

Psychological tip

He also said the code appears to simply require certain actions to be taken, without requiring the information to be used for an affordability assessment. In addition, the adequacy provisions “do not appear to take into account defects, late fees or damage to consumers for failure to fulfill other commitments under this requirement”.

“It is also not clear to me that the code addresses issues such as litigation transactions, non-delivery of products or goods and refund rights, or faulty or unsatisfactory goods and refund rights. “, added Mr. Brody.

The new code put in place a process whereby interest-free loans over $ 2,000 require more verification, using data sources from customers or credit bureaus, than loans below that amount.

Consumer groups said they saw the harm that services bought now and paid for later cause firsthand, including “a growing number of people who find themselves in unaffordable debt by using them, bad practices in the industry. industry and excessive late fees “.

Financial Rights Legal Center CEO Karen Cox said she was happy to see that the new code required membership in the Australian Financial Complaints Authority, but it did not replace “proper regulation”.

Many people, including those from indigenous communities “drawn to BNPL, find themselves dragged into unsustainable long-term debt” as a result of the enticing marketing, she added.

“BNPL companies use a simple yet appealing psychological trick to attract customers. Spreading out the cost of an item makes it look cheaper, but that doesn’t mean you can afford it.

Erin Turner, director of campaigns and communications at CHOICE, said industry self-regulation buy now, pay later “won’t be enough to solve the problems we see, like high fees, inappropriate lending and marketing. aggressive debt to Australians “.

Mr Brody also criticized the lack of penalties for those who break the code, questioning whether this would create a necessary deterrence, and said the effectiveness of the code compliance committee could be reduced by delays as complaints first passed through the AFCA.

ASIC discovered last November that one in five users reimburse late and some skip meals to pay their bills. ASIC Commissioner Sean Hughes said last week that these were “disturbing statistics”. He told a risky AFIA event that the design and distribution obligations and the code of practice “should help address the harm we continue to see for consumers,” but “how BNPL agreements are regulated in Australia is the sole responsibility of the government “.

“I encourage the BNPL industry and the AFIA to include in the code of practice a series of targeted and specific responses to each type of consumer harm ASIC identified in our BNPL 2020 report,” said Mr. Hughes.

“We encourage further consideration of how the code can address concerns about multiple late fees. To effectively manage the risk of harm to consumers, the code should not only be targeted and specific. It must also be regularly reviewed with speed and agility to maintain its relevance. “

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