March 2022

Global pressure to rein in buy now pay later services

One in five New Zealanders have debt with a buy now pay later services.

Buy now pay later is also now being offered as a payment method by some providers for essential items like groceries and utilities.

Consumer advocates from nine countries, including New Zealand, have teamed up to target legal loopholes that enable buy now pay later (BNPL) businesses to avoid credit regulation.

We have added our name to the list alongside consumer advocates in Australia, the US, Sweden, Denmark and the UK, which have all seen widespread growth in the BNPL market.

“Advocates are asking for sensible regulation to apply to buy now pay later so that vulnerable consumers are protected from irresponsible lending,” said Gemma Rasmussen, Consumer NZ head of campaigns and communications.

“At the moment, there’s no legal obligation on BNPL providers to ensure their lending is suitable and affordable for their customers.

“Buy now pay later is an attractive alternative to using a credit card and we recognise that there are a lot of advantages, but vulnerable consumers can be caught out by the lack of protections, resulting in debt spirals and financial hardship.”

In New Zealand there have been calls for BNPL to be regulated under the Credit Contracts and Consumer Finance Act. Consumer has written to the Minister of Commerce and Consumer Affairs asking the government to regulate these services. Other organisations, such as Fincap, Salvation Army, Christians Against Poverty and Debtfix, support the call for regulation.

In November 2021, the government sought feedback on the relative benefits and costs (including financial hardship) of buy now pay later.

Consumer’s latest Sentiment Tracker survey found that ‘unmanageable debt’ was now in the top three financial concerns. One in five New Zealanders have debt with a buy now pay later service and 20 percent of users paid for BNPL purchases using a credit card, increasing the likelihood of being hit with interest.

Buy now pay later is also now being offered as a payment method by some providers for essential items like groceries and utilities. Credit limits can extend to thousands of dollars. When we asked New Zealanders how they accumulated debt, one in four respondents cited spending on essential items as the cause.

“The cost of living is skyrocketing,” Rasmussen said. “As wages fail to keep up with inflation, there will be more people turning to BNPL to manage their finances. We want to ensure those people don’t find themselves in a debt spiral.” The international pressure to apply responsible lending requirements to BNPL providers has grown louder in the past year after a BBC investigation into extreme cases of consumer harm in the UK.

On New Zealand shores, organisations such as Fincap have confirmed that vulnerable consumers are falling into unmanageable debt due to the lack of consumer protection on BNPL services.

The open letter from the global consumer alliance asked regulators to:

  1. Regulate BNPL products in the same way as other forms of credit.
  2. Require merchants to provide an option that allows a consumer to pay for a product in full at the time of purchase.
  3. Obligate BNPL providers to assess whether it is suitable and affordable to provide credit to people, without risk of causing financial harm.
  4. Prohibit BNPL providers from marketing their products in ways that target children or people in financial hardship.
  5. Enable consumers to have access to redress through fair and independent mechanisms when something goes wrong.
  6. Ensure regulators monitor and report publicly on the impact of BNPL products for different groups of consumers.

Member comments

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STEPHANIE J.
30 Mar 2022
BNPL PREFERABLE TO CREDIT CARDS

I love BNPL and use several of them to purchase items that I wouldn't want to put on a credit card. Credit Card companies charge outrageous interest rates and annual fees, and the debt compounds. BNPL allows people to pay a small regular amount weekly or fortnightly, interest free, and penalties are only charged if you are foolish enough to miss a payment. Also, I don't "have skin in the game" !

Dwayne B.
26 Mar 2022
Consumer is arrogant and out of touch.

People love these services because they are convenient, flexible, and generally free. But Consumer doesn't really care what real consumers want. Consumer just wants to wreck things.

Your stakeholders - the actual consumers you purport to represent - do not want these services regulated and have made this crystal clear.

Hundreds of people commented on Facebook when you tried this in the past and told you to back-off. Rather than apologise, you reacted by deleting the post. Now it seems you are doubling-down. That's appalling.

Consumer increasingly engages in action that is diametrically opposed to the best interests of real consumers.

You are failing in your core mission and you are failing because you choose to fail.

Adriaan
26 Mar 2022
CREDIT DEBT

I AM OF THE OPINION THAT CREDIT IS ONLY FAVOURING THE LENDERS. I ONLY SPEND WHAT I EARN HAS SEEN ME BE RESPONSIBLE FOR MY SPENDING CAPACITY AND I CERTAINLY WOUDN'T BORROW TO BUY THE LATEST PHONE OR ANY OTHER WHIM THAT TAKES MY FANCY.

Linda C.
29 Mar 2022
Who do you represent Dwayne??

It reads like Dwayne has skin in the game rather than the interests of "consumers" at heart. Consumer (the org) is about identifying unfairness, misleading info., poor quality etc. and it is why most of us subscribe. Go back to the old adage - if these lenders have done nothing wrong/operate ethically, then they have nothing to fear from sensible regulation in line with other "lenders"?? It is clear that people with lower income are in most danger of becoming overcommitted ... it is in everyone's interest that systems operate with sensible protections, as has been proven over and over again!