Bring on the regulation — but only to a certain point, the buy now, pay later company Zip Co has told a Senate inquiry.

The company (ASX: Z1P) said the sector should be more closely regulated and that regulation should focus on three key areas: responsibility, transparency and customer support.

However, like its competitor Afterpay (ASX: APT) (which also appeared before the inquiry yesterday), Zip Co stopped short of suggesting that BNPL lenders should have to employ credit checks equivalent to those used by banks.

Zip CEO Larry Diamond said the company “wholeheartedly supports” the view of corporate regulator ASIC that buy now, pay later services are a form of credit.

“Every buy now, pay later provider has a duty of care to ensure their products are suitable, and customers can afford the repayments,” Mr Diamond said.

“Zip encourages this committee to explore a reasonable and sector-specific regulatory regime for buy now, pay later products.”

Executives from lenders such as Zip Co and Afterpay (ASX:APT) are appearing before a Senate financial services inquiry this week to address concerns their platforms are putting customers at increased risk of financial hardship.

Along with Zip Co’s announcement on the ASX, the company also issued a set of its own policy recommendations for the sector.

Among the nine recommendations, Zip Co said all BNPL lenders should have should to carry out income checks on customers, and ensure that repayment commitments don’t account for more than 10 per cent of monthly after-tax income.

The company also suggested that some form of credit check would be appropriate, although the recommendation didn’t specify how stringent those checks should be.

Zip Co also proposed a policy framework around late fees, which came into the spotlight after recent analysis of Afterpay showed a sharp increase in revenue from late fees.

“The simplest and most effective means of controlling late fees is a monthly cap regardless of the outstanding balance, original purchase amount or number of missed repayments within that month,” Zip Co said.

The company proposed a cap at the lesser of $10 per month, or 10 per cent of the total monthly repayment due.

Shares in Zip Co were little-changed at $1.15 in morning trade on the ASX.