The secret 'buy now, pay later' consumer lender code of conduct you are not allowed to see

Friday, 26 November 2021

The Government is consulting the public on whether to allow the buy now, pay later industry to self-regulate with its own code of conduct.

Consumer Affairs Minister David Clark is refusing to release a draft code of conduct created by the buy now, pay later finance industry.

Consumer advocates and identity fraud victims, are unhappy with the decision, saying the minister should publish the draft code because the Government is consulting the public on whether to allow the buy now, pay later (BNPL)industry to self-regulate with its own code of conduct.

“Why does it need to be confidential? Share it around, otherwise we don’t know what we are submitting about,” Natalie Vincent, general manager of social good lender Ngā Tāngata Finance says.

Clark says the draft code is “commercially sensitive and in draft form”, and that it is “inappropriate to share at this stage.”

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The industry would also not agree to release the code to Stuff, but Gary Rohloff, managing director of Laybuy , says it is based on a voluntary code developed in Australia.

There are three options for regulating buy now, pay finance , which are short-term loans.

The loans are interest-free because the cost of the loans is paid by the retailer who accept the payments. But borrowers who miss payments face penalty fees, and potentially debt collectors.

Wellington electronics developer Neill Bryce had his identity stolen by someone who opened ‘buy now, pay later’ loan accounts in his name.

The first option for regulation is to bring buy now, pay later under responsible lending laws covering other lenders like banks.

The second is to leave the loans outside the responsible lending laws, and allow the lenders to self-regulate with a voluntary code of conduct.

The third is to develop a code approved and regulated by the Government.

Gary Rohloff founded Laybuy with his wife Robyn and his two sons. Laybuy is now New Zealand’s largest buy now, pay later service.

Tom Abourizk, a policy officer at the Consumer Action Law Centre in Melbourne, Australia, says there are large holes in Australia’s buy now, pay later code.

“We engaged a bit with the Australian Finance Industry Association when they developed it, but most of our major concerns weren’t addressed,” he says.

Ngā Tāngata Finance general manager Natalie Vincent says buy now, pay later needs regulating.

Wellingtonian, Neill Bryce, a victim of identity thieves who opened buy now, pay later accounts in his name, says the Australian code does not even mention identity theft.

“At the moment you can open an account with a name and driver's licence details,” he says.

“These BNPL companies should be using photo recognition.”

Not only do they need to have better processes to prevent identity theft, but they need robust procedures for dealing with victims, he says.

In Australia, ‘buy now, pay later’ companies were allowed to develop a voluntary code of conduct.

“They must have dedicated lines of communication that are available to the public. There must be trained staff to manage identity theft. Information about what to do in the event of identity theft should be provided,” says Bryce, who got little help from the BNPL at which accounts were opened in his name.

Vincent says the Australian code lacked detail, especially on how it would treat vulnerable borrowers who ran into trouble with loans.

“It’s all very well to say we will train our staff to act with respect. What does that mean?” Vincent says.

She says she recently helped a borrower struggling to get help from a buy now, pay later lender, which is a signatory to the Australian code.

“It was near impossible to get support. It took days and days for us to be able to be our client's representative.”

Hardship processes need to be easy for people to access, saying if it was hard for someone with her skills, it must be nearly impossible for someone who lacked her skills.

Ngā Tāngata Finance wants to see the industry brought under responsible lending laws.

“An industry code would not be enough to protect people,” she says.

Abourizk says the industry in Australia used to claim only about 1 per cent of buy now, pay later borrowers struggled with their loans.

But, report by the Australian Securities and Investments Commission last year found a fifth of borrowers missed a payment during the previous 12 months, resulting in over A$43 million (NZ$45m) in late fees.

It found 20 per cent of borrowers had cut back on essentials like meals to be able to make payments, and 15 per cent had taken out additional loans to make payments.

The Australian code says buy now, pay later lenders will “consider” developments in technology when improving their lending processes.

But Tim Poskitt, country manager for technology company Yodlee, says the technology already exists to allow near real-time loan affordability checking for borrowers.

Lenders can aggregate banking data from individuals in seconds, he says.

That is all their banking transaction data, all their expenses, all their income, as well as checking their credit reports.

Submissions on the discussion paper close on December 16.