Consumer NZ calls for tighter control of buy now, pay later services

Wednesday, 23 March 2022

Vulnerable consumers risk falling into a spiral of debt while buy now, pay later businesses avoid credit regulation, Consumer NZ says.

A modern alternative to traditional lay-by services, buy now, pay later (BNPL) systems allow shoppers to buy things they can not immediately pay for.

The BNPL market has grown rapidly in New Zealand, where popular options include Afterpay, Humm, Laybuy, GenoaPay and Zip. Similar growth has been seen in Australia, the United States, Sweden, Denmark and Britain.

That has prompted consumer advocates from nine countries, including New Zealand, to team up to target legal loopholes enabling the businesses to avoid credit regulation.

Consumer NZ says vulnerable people risk falling into debt spirals while buy now, pay later businesses avoid credit regulation. (File photo)

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Consumer NZ head of campaigns Gemma Rasmussen said the group wanted to see sensible regulation to protect vulnerable users from irresponsible lending.

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

“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.”

AfterPay, Humm, Laubuy, GenoaPay and Zip all provide users with information on managing their spending and options for dealing with financial hardship.

But, they were not required to carry out credit checks, although LayBuy managing director Gary Rohloff said most providers did.

There is also no requirement to have credit limits and financial hardship policies which commit providers to working with customers experiencing financial difficulty.

In New Zealand there have been calls for BNPL to be regulated under the Credit Contracts and Consumer Finance Act. Consumer NZ has written to Consumer Affairs Minister David Clark asking the Government to regulate these services, a request supported by organisations like Fincap, the Salvation Army, Christians Against Poverty and Debtfix.

In November, the Government sought feedback on the relative benefits and costs, including financial hardship, of buy now, pay later, while Consumer NZ’s latest Sentiment Tracker survey found that unmanageable debt was in the top three financial concerns.

One in five New Zealanders have debt with a buy now, pay later service and 20 per cent of users paid for BNPL purchases using a credit card, increasing the likelihood of being hit with interest, the survey found.

Buy now, pay later was also being offered as a payment method by some providers for essential items like groceries and utilities, and credit limits could extend to thousands of dollars.

When Consumer asked how they accumulated debt, one in four respondents cited spending on essential items as the cause.

“The cost of living is skyrocketing. As wages fail to keep up with inflation, there will be more people turning to BNPL to manage their finances,” Rasmussen said.

“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 Britain.

In New Zealand, organisations such as Fincap have confirmed 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:

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