Buy now, pay later self-regulation missing some teeth: RateCity

The buy now, pay later industry’s new code of practice is a step in the right direction but it’s unlikely to stop many customers from overspending.

The code, which came into effect today, includes caps on late fees, support for vulnerable customers and freezing of accounts when repayments are missed. The code also requires buy now, pay later (BNPL) members to write their terms and conditions in plain language, prominently display information about fees and send customers reminders when payments are due.

However, the code doesn’t prevent people from signing up to multiple platforms, a key issue identified by ASIC in a recent report into the sector. It also allows platforms offering less than $2,000 worth of debt to, in most cases, skip credit checks.

RateCity.com.au research director, Sally Tindall said: “The code is a step in the right direction, but when you get into the detail, it’s missing some teeth.”

“It’s hard to see what substantial changes the main players have needed to make and if they’re not changing the way they operate, then the same issues are likely to prevail,” she said.

“The industry has always had some good protections in place to stop customers getting on a debt treadmill with things like caps on late fees and the freezing of unpaid accounts, but the new code doesn’t force all providers to check whether their customers have debts on multiple platforms.

“Credit cards are regulated by the National Consumer Credit Act, and yet they still get people into trouble through excessive interest rates, high fees and low minimum repayments.

“That said, a couple of years ago the government introduced tougher new rules, preventing people from getting access to big credit limits across multiple cards that they couldn’t afford to repay within three years.

“The buy now, pay later industry needs to properly assess how much credit a person has access to, and their ability to repay this debt in full, to make sure people aren’t racking up mountains of debt,” she said.

ASIC’s 2020 report: key findings

ASIC’s November 2020 survey of buy now, pay later users found that over a 12-month period:

• 21% had missed a payment.
• 20% had cut back or gone without essentials such as meals as a result of overspending on these platforms.
• 20% were late paying other bills in order to make their BNPL repayments.
• Of those that missed payments, 52 per cent were using at least two different buy now, pay later platforms at the time.

How to avoid getting into trouble using BNPL platforms:

1. Read the terms and conditions and understand what fees you could get hit with.
2. Set yourself strict spending limits.
3. Limit yourself to one platform, and one purchase at a time.
4. Don’t impulse buy. Sit on any major purchases for at least 24 hours.
5. If you get into trouble, pull the pin and call for help. Each platform should have a hardship policy available.

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