Ever since its inception, critics of the buy now, pay later (BNPL) concept have called for 'more regulation' for BNPL providers like Afterpay Ltd (ASX: APT).
Traditional credit providers, such as the ASX banks, have long been subject to strenuous rules and regulation in Australia. These are mostly designed to protect consumers from usurious practices and the like.
But the BNPL sector has largely escaped this kind of oversight. That's mainly because BNPL products don't tend to charge interest on their consumer's debt. That makes it hard to call them 'credit providers'. That's despite the fact that BNPL companies help their customers spend money that isn't theirs.
All of this has resulted in BNPL inhabiting a 'grey area' of financial laws and regulations. But the surge in popularity that BNPL services have enjoyed in recent years (particularly over the past year) has lead to growing calls for this grey area to be coloured in.
And that seems to be what is developing today. According to a news.com.au report today, Australia will become the first country in the world to implement industry standards for the sector. These standards will be designed to ensure safe practices and "name and shame dodgy lenders".
Image source: Getty Images
BNPL gets deeper oversight
The new code, which the Australian Finance Industry Association (AFIA) drafted, is reportedly set to come into effect on Monday.
It will force companies like Afterpay, Zip Co Ltd (ASX: Z1P), and Commonwealth Bank of Australia's (ASX: CBA) Klarna to adhere to new rules. These include late payment caps for customers and compulsory financial/credit checks on customers before they make a purchase. Providers will also be prohibited from allowing people under the age of 18 to use a BNPL service.
It also aims to prevent any lender from placing additional pressure on someone in financial hardship. Companies will also be forced to take some partial payment upfront before offering a service.
According to the report, BNPL disputes under the code will be adjudicated by the Australian Financial Complaints Authority. A designated committee will be looking to name and shame companies providing shoddy lending to customers.
The report quotes AFIA chief executive Diane Tate, who had this to say on the new code:
The growth and diversity of the products and services enhances consumer choice… It brings to life the concept that innovation and competition are for the everyday person and that this can be achieved while codifying strong consumer protections.
BNPL shares like Afterpay are responding well in trading this morning. The Afterpay share price is up 4.6% at the time of writing. Zip shares are doing even better, up 5.77%.
