ASIC lashes buy now, pay later code of conduct

James EyersJun 10, 2020 – 3.41pm

The corporate regulator has attacked the buy now, pay later industry's draft code of conduct as lacking consumer protections compared to national credit laws.

The Australian Securities and Investments Commission's stinging criticism of the draft code developed by leading players including Afterpay, Zip and Flexigroup with the Australian Finance Industry Association was contained in a submission to the Australian Competition Tribunal filed last week.

The tribunal is hearing a challenge by Flexigroup to the Australian Competition and Consumer Commission, which wants solar panel installers to only offer buy now, pay later products if the financier has signed an industry code of conduct that requires a responsible lending assessment with equivalent protections to the National Consumer Credit Protection Act.

Flexigroup argues this is not necessary. It is a signatory of the draft code, which contains no requirement to meet duties equivalent to responsible lending.

ASIC's position, presented to the tribunal on Wednesday, deals a blow to the buy now, pay later code, which is expected to come into force on January 1 after being delayed for six months when consumer groups raised concerns.

Not enough

The consumer arguments are now backed by ASIC, which is intervening in the tribunal proceedings.

ASIC has not previously made any public comments on the BNPL code, which Afterpay, Zip and other providers want to use to build customer trust in their products. They operate outside the credit laws because customers are not charged interest and pay low fees.

"ASIC is concerned about the vagueness of the phrase 'substantively equivalent consumer protections'," the regulator told the tribunal in an opening submission backing the ACCC's intervention to strengthen protections for customers buying solar panels with the products.

It said it is concerned about the "vague" upfront assessment process as set out in the draft code, which "might conceivably give rise to adverse consumer outcomes".

ASIC said the code of conduct's allowance for providers to adjust future spending limits based on a consumer’s repayment history - a key feature - was inconsistent with requirements for credit cards not to send limit increases to customers.

Furthermore, ASIC said the code "does not contain any sanctions for breaches" akin to the corporations or credit laws, and its internal dispute resolution provisions make no commitment to finalising a complaint within a certain maximum timeframe.

There is no pledge that signatories will give reasonable assistance to the Australian Financial Complaints Authority to resolve complaints, or give effect to any determination made by AFCA.

Nor does it introduce an obligation to provide reasons to consumers if a hardship application has been declined, ASIC said.

ASIC is also critical of the code for not including any of the contract enforcement protections contained in the national credit act, including procedures around service of default notices, and for not specifying how regularly reviews will take place after an initial review.

The ACCC wants to bolster protections for customers using buy now, pay later to finance rooftop solar because it is concerned people are overpaying for panels due to hidden surcharging.

Flexi's product humm finances around 9 per cent of all solar systems in Australia, including 210,000 systems bought since January.

The Consumer Action Law Centre has intervened in the case, arging some solar panel retailers offering buy now, pay later finance have engaged in predatory unsolicited sales practices including signing customers to unaffordable finance arrangements, inflating the cost of panels, and overcharging customers for systems.

The hearing is scheduled to run until Friday.

ASIC is preparing a report on the buy now, pay later industry as a follow-up to a November 2018 report that found the products "can cause some consumers to become financially over-committed". But it told the tribunal its release had been delayed as it deals with COVID-19.