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New Zealand becomes the latest jurisdiction to be set on regulating the alternative payments product after its increase in use during the pandemic and pressures arising from the cost of living crisis.
Better checks to stop vulnerable consumers landing themselves in buy now, pay later (BNPL) related debt are on the way, the country’s commerce and consumer affairs minister, David Clark, has announced.
BNPL providers in New Zealand include Afterpay, Zip and Klarna.
“This is the right thing to do. As the global cost of living crisis puts pressure on New Zealanders and their families, we are taking action to help them avoid unmanageable debt, especially as the Christmas season looms,” Clark said.
The government has agreed affordability checks should apply to BNPL loans above a certain threshold, proposed at NZD600 ($347), meaning borrowers will receive the same kind of protections as borrowers using other credit products, such as credit cards and personal loans. Options for how the affordability checks should be carried out will be consulted on.
Smaller loans, under the threshold limit, will not have to go through the same process, but comprehensive credit reporting will need to occur.
All providers will be required to have hardship processes in place and belong to a dispute resolution scheme. Directors and senior managers will also need to be certified fit and proper by the Commerce Commission.
“While for many, BNPL can be a useful way to spread the cost of large household purchases, we are trying to stop vulnerable people getting into a spiral of debt if lenders allow them to take on more than they can afford,” said Clark, who is part of the centre-left New Zealand Labour Party.
The BNPL sector is clearly a popular innovation, he acknowledged, pointing out that the amount of money spent with BNPL in New Zealand grew to NZD1.7bn ($0.98bn) in 2021, up from NZD0.76bn ($0.44bn) in 2020.
“This is why we need to make sure these products and the companies that offer them are serving consumers properly, and that they can be held accountable,” Clark said.
“We will strike the right balance between protecting consumers and enabling continued access to low-cost credit by applying the Credit Contracts and Consumer Finance Act 2003 (CCCFA) in a proportionate way.”
Going forward, the country’s Ministry of Business, Innovation and Employment (MBIE) aims to commence consultation on the details, including the proposed NZD600 threshold and what rules will apply above this value, later this year.
It is intended that final regulations will be made in 2023.
New Zealand is following its neighbour, Australia, in outlining regulatory plans for the sector. In June, Australia's financial services minister Stephen Jones confirmed that the newly elected centre-left government will regulate BNPL under existing consumer credit laws, similar to New Zealand, as well as the UK and Ireland.
Ireland was one of the first countries to regulate the payment method. In May, the Central Bank of Ireland announced that BNPL providers will now have to be authorised by the CBI either as a retail credit firm or a credit servicing firm.
This followed legislation that came into effect the prior month via the Consumer Credit Act.
