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Afterpay has pushed for self-regulation of the booming sector.Credit:Attila Csaszar

While consumer groups warn the standards do not go far enough,Afterpay and Zip both defended self-regulation last week by highlighting the relatively low number of customers who are late with payments.

The code,developed by the Australian Finance Industry Association (AFIA) and overseen by an independent compliance committee,is not expected to change how Afterpay and Zip approve customers. Both have also already capped their late fees.

But in a sector where some customers are borrowing up to $30,000,Zip co-founder Peter Gray last week said it aimed to set “minimum standards” for operators.

AFIA chief executive Diane Tate said the code compliance committee would have the power to force BNPL providers to make changes to their systems,conduct extra training of staff,or name and shame firms that broke the code.

“The sanctions provisions are really about making sure that if there are instances of practice not going well,that those practices can be changed and the committee can force that,” Ms Tate said.

For purchases of less than under $2,000,which covers Afterpay’s market,the code will not require a credit check,but it commits providers to steps including verifing a customer’s identity,and requiring customers make the first instalment payment at the time of the purchase.

For transactions between $2,000 and $15,000 BNPL firms are committing to using at least some external data,such as a bank statement,in their assessments. For transactions between $15,000 and $30,000 there is a commitment to use two external data sources.

The code also says BNPL customers must be adults,and it rules out BNPL products being used to pay for gambling or the purchase of guns.

BNPL firms,which allow customers to pay back a loan in instalments,have surged in popularity as younger generations have shied away from traditional credit. Because the loans do not charge interest,they are not regulated as credit products.

A coalition of leading consumer groups last week reaffirmed their call for BNPL to be regulated as credit,with Consumer Action Law Centre chief executive Gerard Brody saying the code did not require every loan to be suitable and affordable to the customer.

“The Financial Services Royal Commission Final Report identified the limits of self-regulation including inadequate standards,lack of compliance,weak monitoring and enforcement and no consequences for breaches,” Mr Brody said.

Businesses covered by the code include Afterpay,Zip,Brighte,Openpay,Payright,Klarna,Latitude Financial and Humm.

Zip’s Mr Gray last week said one in 100 customers were late last month,while Afterpay said 98 per cent of payments did not attract late fees,which made up a smaller share of its revenue.

Ms Tate noted the decline in late fee revenue in the industry and said that was an expected result of the late fee cap included in the code.

“That means every provider has to limit their fees,and they have to disclose that limit to their customers,so that helps them avoid it.”

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