Voluntary Buy Now Pay Later Code comes into effect

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BNPL

As Buy Now Pay Later (“BNPL”) businesses continue to maintain their popularity and with more BNPL players entering the market, the Australian Finance Industry Association (“AFIA“) has released a new Code with which industry participants can volunteer to comply. The Code came into effect on 1 March 2021. At the commencement date, some of Australia’s largest BNPL businesses had signed up, including Afterpay, Klarna, Openpay and Zip Pay.

Who is affected by the Code?

As the Code is voluntary (meaning compliance is not mandatory), it aims to establish best practice standards for the BNPL businesses who comply (“Code Members”) and strengthen customer protection in an unlicensed market. The Code provides nine (9) key commitments for Code Members:

  1. Focus on customers;
  2. Act fairly, honestly and ethically;
  3. Keep customers properly informed about the products and services available;
  4. Ensure the product or service is suitable for the customer;
  5. Conduct an ongoing review of the suitability of available products and services;
  6. Deal with complaints fairly including obtaining membership with the Australian Financial Complaints Authority (AFCA);
  7. Provide financial hardship assistance;
  8. Ensure compliance with legal and industry obligations; and
  9. Support and promote the Code.

Retail and merchant partners (“Partners”) are also impacted by the Code which requires Code Members to ensure their Partners comply with the following minimum standards:

  • Act lawfully, fairly and ethically in their dealings with customers;
  • Communicate clearly when dealing with customers and in marketing and advertising material that relates to BNPL products and services;
  • Safeguard customer confidentiality;
  • Respond to customer complaints in a timely manner;
  • Require employees or agents to understand the minimum standards and are trained to meet them; and
  • Provide clear and upfront information about the Code Member’s services, fees and charges in an accessible format.

Why is the Code Significant?

The Code aims to bring Code Members to a level of regulatory oversight similar to that which is imposed by the Australian Credit Licence (“ACL”) regime.

Act fairly, honestly and ethically

Section 9 of the Code requires Code Members to always act fairly and honestly, be ethical and treat customers reasonably in all dealings. The commitment is an adaptation of Section. 47(1)(a) of the National Consumer Credit and Protection Act (NCCP Act) which requires ACL holders to do all things necessary to ensure their credit services are engaged in efficiently, honestly and fairly.

Ensure the product or service is suitable for the customer

Section 11 of the Code requires Code Members to conduct a suitability assessment prior to the provision of a product or service to a new customer. New customers must also be identified and verified in accordance with the Anti-Money Laundering and Counter-Terrorism Financing (“AML/CTF”) Act and Rules. Existing customers will be subject to a suitability assessment prior to entering into a new transaction. Where a customer fails the suitability assessment, the Code Member has the right to decline the customer. This commitment is a scaled down version of the Responsible Lending obligations imposed on ACL holders under the NCCP Act. Under the Responsible Lending obligations, ACL holders must not enter into credit contracts which are unsuitable for the customer and must conduct certain information gathering and verification procedures to determine the suitability of the credit contract.

Deal with complaints fairly

Section 13 of the Code requires Code Members to have a Complaints Policy accessible on their website and sets out the timeframes in which complaints must be acknowledged and responded to. Interestingly, the Code specifically states that complaint resolution procedures must comply with ASIC standards and requirements (outlined in Regulatory Guide 271), except where it is deemed the standards and requirements can be improved on. Code Members are also required to be a member of AFCA which is the ASIC approved External Dispute Resolution mechanism available to customers of ACL holders.

Provide financial hardship assistance

Section 14 of the Code provides a requirement for Code Members to accept hardship requests from customers. Section 14 also sets out the timeframes in which hardship requests must be dealt with. The Code also states that Code Members will never commence bankruptcy proceedings against customers. This Commitment is a scaled down version of the hardship obligations imposed on ACL holders (refer to section B5 of ASIC Regulatory Guide 204). However the hardship requirements under the Code have been modified to better suit BNPL entities.

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Buy Now, Pay Later entities are ever expanding in Australia and Sophie Grace is here to help. If you are considering establishing a Buy Now Pay later business, contact Sophie Grace for assistance.

About The Author

Sarah Murray

As the Head of Licensing, Sarah has oversight and responsibility for all AFS and credit licence applications ensuring they fulfil the legal and regulatory guidelines set by ASIC. Sarah also assists clients maintain their licences through ongoing compliance processes and procedures and the development of compliance programs. She also has oversight of all AUSTRAC registrations and development of Anti-Money Laundering / Counter Terrorism Financing programs on behalf of clients.

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