Afterpay, Zip and others to cap late fees under new code of practice

author-avatar By on January 29,2020
Afterpay, Zip and others to cap late fees under new code of practice

Photo by 🇨🇭 Claudio Schwarz | @purzlbaum on Unsplash

Buy now, pay later providers like Afterpay, Zip and Latitude are set to be bound by new industry standards that are hoped will protect consumers.

Described as a 'world first' for the buy now, pay layer (BNPL) sector, the code of practice drafted by the Australian Financial Industry Association (AFIA), comes after a Senate inquiry and an ASIC review of the sector.

Under the terms of the code, due to be implemented on July 1, BNPL providers can't initiate bankruptcy proceedings against a customer, refer them to a debt collector, or allow them to take on financial products that aren't suitable for them.

They will also not be allowed to charge late fees to customers who have flagged they're struggling financially and late fees must be "fair, reasonable and capped".

Along with controls on late fees, customers will be assessed upfront to ensure a product is suitable, and prevented from spending more when they're behind in their repayment obligations to make sure customers don't over-commit.

Consumers will also have access to the Australian Financial Complaints Authority (AFCA) to make complaints against BNPL providers if they're unable to resolve a dispute. 

In recent years, the BNPL sector has been accused of pushing young people into high levels of debt with little to no credit checks, and raking in revenue from late fees. 

According to ASIC, one in six BNPL users had become overdrawn, delayed bill payments or had to borrow additional money to make their repayments.

The percentage of revenue from missed repayment fees rose from just 2% in 2016 to 14% in 2018. 

AFIA CEO Diane Tate said the code is being developed to strengthen consumer protections.

"BNPL providers are not unregulated, they already comply with numerous laws that protect customers," Ms Tate said.

"However, this draft code goes above and beyond existing laws by increasing safeguards for customers, including upfront assessment of customers to ensure the product will be suitable for them, product limitations to ensure customers don't over-commit, and access to AFCA's external dispute resolution scheme.

"Approximately 30% of Australian adults (5.8 million) now use BNPL services, so this is a good time for the industry to develop an industry code to set the standards and drive good practices.

"While our intent is to get the code right from the outset, we welcome all feedback. For instance, ASIC's latest BNPL review is due soon. Depending on the timing of the release, it may inform the code's development prior to implementation." 


Latest Articles

author-avatar
Emma joined Savings.com.au as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).

Get free insights & tips monthly

By subscribing you agree to the Savings Privacy Policy

Loading data please wait...

{{returnData.productName}}

Overview

Current Rate

{{returnData.currentRate | percentage:2}}

Comparison Rate*

{{returnData.comparisonRate | percentage:2}}

Rate Type

{{returnData.rateType}}

Advertised Rate

{{returnData.advertisedInterestRate}}

Comparison Rate*

{{returnData.comparisonRate}}

Monthly Repayment

{{returnData.monthlyRepayment}}

Interest Type

{{returnData.interestType}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Bonus Interest Rate

{{returnData.bonusInterestRate | percentage:2}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Introductory Rate

{{returnData.introductoryRate | percentage:2}}

Introductory Term

{{returnData.introductoryTerm}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Term

{{returnData.term}}

Advertised Interest Rate

{{returnData.advertisedInterestRate | percentage:2}}

Interest Frequency

{{returnData.interestFrequency}}


Fees and Features

Ongoing Annualised Fee

{{returnData.annualFee}}

Upfront Fee

{{returnData.upfrontFee}}

Offset Account

Redraw

Principal & Interest

Interest Only

N/A{{returnData.interestOnly}}

Max loan to value ratio (LVR)

{{returnData.maxLVR | percentage:0}}

Lump sum repayments

N/A

Additional repayments

Maximum Loan Term

{{returnData.maximumLoanTerm}}

Upfront Fee

${{returnData.upfrontFee}}

Ongoing Monthly Fee

{{returnData.ongoingFees}}

Early Repayment Fee Applies

N/A

Vehicle Types

{{returnData.vehicleType}}

Maximum Vehicle Age

{{returnData.maximumVehicleAge}}

Pre Approval Available

N/A

Online Application

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Minimum Deposit

{{returnData.minDeposit | currency : '$' : 0}}

Upfront Fees

{{returnData.upfrontFee | currency : '$' : 0}}

Annual Fees

{{returnData.annualFee | currency : '$' : 0}}

Notice Period to Withdraw

{{returnData.noticePeriodToWithdraw}}

Online Application

N/A

Automatic Rollover

N/A

Maturity Alert

N/A