The government has grown increasingly concerned by the growing number of Kiwis that are becoming burdened by debts they cannot seem to afford. One of the contributors to this situation is buy now pay later (BNPL) schemes that the government now wants to enforce rules on.
Commerce and Consumer Affairs Minister, David Clark, is proposing that affordability checks be carried out for BNPL loans over $600. This is expected to help give consumers similar protections as with other credit contracts like loans and credit cards. Currently, BNPL loans are not subject to consumer protections. The new proposals would have them fall under the Credit Contracts and Consumer Act 2003. There are reportedly over half a million people using this facility.
Earlier this year it was found that about 9% of BNPL borrowers had accounts in arrears. This means that besides having to contend with late payments, they were also being increasingly burdened by late fees. In some cases, the issue was made more complicated by people using credit cards to cover their BNPL payments. Financial experts like Jeremy Cooper have also reported that low-income earners do easily manage to open multiple BNPL accounts, allowing them to make purchases worth thousands of dollars when they likely cannot afford to make repayment.
Clark said that there was increasing pressure being put on New Zealand households by the cost of living crisis and that this action would help avoid more unmanageable debt, especially when the Christmas season is just around the corner. He added that spending via BNPL loans had grown to $1.7 billion in 2021, up from just $755 million the previous year.
He acknowledged that the loans were useful in helping to spread the cost of large purchases but noted that there was still a need to ensure that vulnerable people were not being pushed into a spiral of debt by lenders who allowed them to take on a debt burden they could not afford.
This move comes shortly after urgent calls for regulation of the sector by business and health advocates that have reported increased incidents of family violence, gambling, health problems, and drink-driving attributable to the schemes.
The ministry is also proposing that comprehensive credit reporting be done for smaller loans below the $600 threshold. BNPL providers would also be required to have hardship processes set up under a dispute resolution scheme to support customers that get behind in payments. Senior managers and directors of the BNPL companies would also need to be certified as fit and proper by the Commerce Commission.
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