Consumer NZ is advocating for better credit regulation of the buy now pay later (BNPL) sector to avoid vulnerable consumers becoming at risk of falling into a spiral of debt. Head of campaigns, Gemma Rasmussen, has said that sensible regulation was needed to protect users from irresponsible lending. Her sentiments have been echoed by other advocacy groups including Salvation Army, Debtfix, Christians Against Poverty, and Fincap.
The BNPL sector has become increasingly popular as an alternative to the traditional lay-by arrangement and credit card use in multiple countries including New Zealand, Australia, the UK, the US, Sweden, and Denmark. Now, consumer advocacy groups from nine nations, including New Zealand, want legal loopholes that these businesses are exploiting to be closed.
While Rasmussen acknowledged that BNPL deals had certain advantages, she expressed concern that a lack of protection for vulnerable consumers could lead to financial hardship and spiralling debt. She noted that there was currently no legal requirement for these providers to ensure their lending was affordable and suitable to consumers. The providers do not charge interest but impose hefty fines for late payment.
Consumer NZ is calling for the BNPL to be regulated under the Credit Contracts and Consumer Finance Act. Their data indicates that one in five Kiwis have debt with a BNPL provider, with 20% using credit cards to pay for these purchases. They also found that BNPL was also being used to purchase essential items like groceries and utilities. Rasmussen noted that as wages failed to keep up with inflation, more people were being forced to turn to BNPL to manage their finances.
In November 2021, it was found that as many as 600,000 Kiwis has one or more BNPL accounts. However, agencies that help families deal with problem debts reported that overdue BNPL loans were becoming an increasingly common occurrence.
The Ministry of Business, Innovation and Employment (MBIE) then suggested several options for regulating this industry. This included leaving them outside responsible lending law and allowing the sector to develop their own voluntary code of standards, require that a code of conduct be developed and monitored by the MBIE, or place the BNPL sector under existing lending laws already covering other mainstream financial institutions like banks and credit card companies.
Global consumer advocacy groups are now asking regulators to regulate the BNPL sector as they do other types of credit. They are also asking for these lenders to assess whether their credit is affordable and suitable to their customers, to prevent the risk of financial harm. The global consumer alliance is also asking for fair and independent mechanisms to be put in place so that consumers can have means for redress, and that regulators monitor and publish reports on the impact BNPL products have on different consumer groups.
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