Afterpay introduces delayed payments, putting borrowers at risk of unaffordable debt

From 18 June, you might be eligible to delay your first repayment on Afterpay purchases by up to 2 weeks. A second change may allow you to choose the day money is taken from your bank account.

Before the changes, you would need to pay 25% of the value of your order upfront and couldn’t choose a repayment start date.

It’s up to Afterpay to decide whether you are eligible to defer your first payment and for how long the feature will be available.

In its terms and conditions, Afterpay says the decision will be based on several factors, including whether you have:

• held an existing Afterpay account in New Zealand for more than 1 year
• not requested or received financial hardship assistance in the past year
• not had more than 5 payment declines within the past 6 months.

To use the “No Upfront Payment” feature, your order must be less than $500 including any taxes, charges, or shipping fees and can’t be for a gift card.

Financial capability advocates concerned

We spoke to FinCap, a charity supporting financial mentors across the motu. Senior policy advisor Jake Lilley said there's a big risk that unaffordable loans will be approved.

“The real issue here with whether or not credit is advanced without an initial or immediate payment is whether it is actually affordable. There’s no requirement for an affordability assessment.”

Lilley said while affordability assessments might seem like a pain or an annoying process, they’re there to protect consumers.

“[Affordability assessments] are things that are there to stop lenders turning a blind eye to causing an issue,” he said.

Another worry is the volume of consumers using BNPL to pay for essential services.

“People can often end up with 10 loans and it's very hard for someone to take a step back and get everything organised.”

In this respect, Lilley said allowing consumers to choose the day they pay could be helpful but wouldn’t mitigate other risks.

“Relative to other debts, it’s not as expensive to service but it’s the straw that breaks the camel’s back.”

Positive changes on the horizon

From 2 September 2024, BNPL lenders are required to comply with lender obligations imposed by the Credit Contracts and Consumer Finance Act (CCCFA).

Previously, BNPL lenders haven’t been required to comply with the provisions of the CCCFA, unlike other lenders such as credit card companies. It means consumers haven’t had the protections under the act that they deserved.

BNPL lenders will be exempt from the requirement to conduct a full affordability assessment but must:

• be certified by the Commerce Commission
• disclose information to borrowers at certain times
• make sure any credit or default fees are reasonable.

Where to get help with finances and debt

• Sorted is a free service helping New Zealanders get ahead financially.
• FinCap is an organisation that supports free financial mentoring services.
• Money Talks is a free service helping New Zealanders with day-to-day money matters like budgeting and debt management, as well as guiding people through Work and Income processes.
• Insurance and Financial Services Ombudsman is a free service that resolves complaints about insurance and financial services.