An explosion of deals using Buy Now, Pay Later financing programs has forced the New Zealand government’s hand over preparing laws to control the sector.
Under plans revealed this week, providers of BNPL products will be required to conduct an ‘affordability check’ before agreeing to advance the finance for goods purchased. The new rule will apply to products priced over $600.
Commerce and Consumer Affairs Minister David Clark said this would bring the BNPL sector into line with other credit providers, such as banks and credit card companies.
“While for many, BNPL can be a useful way to spread the cost of large household purchases, we are trying to stop vulnerable people getting into a spiral of debt if lenders allow them to take on more than they can afford,” Clark said.
Government data shows the amount of money advanced through BNPL companies rose from $755 million in 2020 to $1.7 billion last year.
While BNPL offers consumers instant finance for free, with payments spread over several months, there are widespread concerns that many consumers are racking up debts they cannot afford to repay, and being charged interest when payments are missed, falling into a spiral of debt.
Gary Rohloff, MD at locally owned BNPL provider Laybuy, has welcomed the government’s move to strengthen regulation of the sector.
He argues that BNPL provides consumers with a safe and convenient alternative to credit cards, providing small amounts of interest-free credit and structured repayments.
“While BNPL can help consumers manage their budget by allowing them to spread the cost of their payments interest-free, it is still a form of credit and needs to be treated as such,” says Rohloff.
“That is why we support an enhanced regulatory framework that recognises the unique features of BNPL, but also protects vulnerable consumers and ensures they are not taking on a debt that they cannot afford.”
He said Laybuy, and its rivals, still need to work through the details of Clark’s announcement. But his company already checks every new customer, uses an independent agency to resolve any disputes with customers and has “a robust hardship policy” in place.
“We look forward to engaging with the government through the consultation process and to ensure that the regulation strikes the right balance and allows consumers to continue enjoying the benefits of BNPL.”
Clark said the government believes it needs to ensure BNPL products and the companies offering them are serving consumers properly, and that they can be held accountable.
The plan includes requiring providers to have hardship processes in place and belong to a dispute resolution scheme. BNPL company directors and senior managers will need to be certified fit and proper by the Commerce Commission.
