The Australian Securities and Investments Commission has told the buy now pay later industry that its planned code of practice must include sanctions for companies that do not comply.

Speaking at an Australian Finance Industry Association summit yesterday, ASIC commissioner Sean Hughes set out the regulator’s expectations for the code.

Hughes said it will need to focus on fair outcomes for consumers and include strong review and compliance mechanisms.

The code is being developed by the AFIA and industry participants. It was to have been in place at the start of the year but has been pushed back to March.

“I encourage the BNPL industry to include in the code a suite of targeted and specific responses to each type of consumer harm ASIC identified in our 2020 BNPL report,” Hughes said.

The 2020 report said: “Our review highlights that while BNPL arrangements have been embraced as a way to make purchases more affordable, some consumers are missing payments, paying missed payment fees and struggling to meet their financial commitments.

“If the BNPL provider’s data indicates that consumers are paying missed payment fees repeatedly, for example, or that these fees represent a significant proportion of the amount borrowed, the provider will need to consider why this is occurring and how this can be addressed.”

The report found that 21 per cent of users had missed a payment in the past 12 months, 20 per cent said they cut back on essentials to make BNPL payments in the past year, and 15 per cent said they took out a loan to make their BNPL repayments on time.

Hughes said the BNPL industry was covered by ASIC’s product intervention power and would be covered by design and distribution obligations, which start in October.