New Zealand’s Buy Now Pay Later sector is facing increased regulation, with the government proposing to extend many of the protections afforded to those using credit cards or personal loans to BNPL customers.

Kiwis spent NZ$1.7 billion with BNPL services in 2021, up from NZ$755 million in 2020. BNPL transactions are currently not treated as consumer credit contracts and are therefore not subject to consumer protections under the Credit Contracts and Consumer Finance Act (CCCFA). Over 9 per cent of borrowers are missing repayments - and paying high late payment fees. 

The government proposes that affordability checks be mandatory for BNPL loans above NZ$600, although that threshold will be open for consultation. 

If BNPL is brought under the umbrella of the CCFA this means:

•    general lender responsibilities will apply, including assisting borrowers to make informed decisions, and treating them reasonably and ethically;•    borrowers will be protected from unreasonable default fees;•    borrowers facing unforeseen hardship must be able to apply to the lender to have their repayment contract varied;•    BNPL lenders will need to be part of an external dispute resolution scheme and provide details of the scheme if borrowers make a complaint or hardship application. Consumers will be able to receive compensation and statutory damages from lenders who breach relevant CCCFA rules;•    BNPL lenders will have to provide information about financial mentoring services to borrowers who miss payments;•    BNPL lenders will have to disclose key information about credit contracts and any variations;•    directors and senior management will have to be certified by the Commerce Commission as ‘fit and proper’ and will be subject to due diligence duties.

There will also be some additional obligations that will apply specifically to BNPL lenders:•    they must carry out comprehensive credit checks with a credit reporting agency, such as Equifax, Centrix or Illion.•    they must disclose the repayment schedule and late fees when every purchase is made using BNPL, not just when the consumer credit contract is first entered into.

Laybuy managing director Gary Rohloff wrote in August that putting BNPL under the same framework as credit cards would be a sledgehammer approach that would “impose enormous compliance costs on BNPL providers that the business model is simply not built for and which would deliver no tangible benefit”. Following Wednesday’s announcement, including the $600 threshold, Rohloff said Laybuy welcomed the news and supported “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”.

Zip COO Chris Patrick said it supported “fit for purpose” regulation that provided “appropriate guardrails to ensure consumers are protected while not stifling innovation or competition. We conduct credit checks on all customers and believe this is an appropriate measure in assessing suitability.”

But financial mentors said BNPL loans should be regulated exactly like any others, and described the NZ$600 threshold as too high to protect vulnerable, low-income borrowers. 

Fincap chief executive Ruth Smithers said it was “great to see some