“Regulate BNPL products in the same way as other forms of credit”

Consumer New Zealand has joined consumer groups in eight other countries seeking to regulate buy-it-now-pay-later (BNPL) services to protect vulnerable borrowers.

Gemma Rasmussen, Consumer NZ’s head of campaigns and communications, says the group is looking for sensible regulation to apply to BNPL so that vulnerable consumers are protected from irresponsible lending.

“At this time, there is no legal obligation for BNPL providers to ensure that their loans are suitable and affordable for their clients. Buy now, pay later is an attractive alternative to using a credit card and we recognize that there are many benefits, but vulnerable consumers may be caught out by the lack of protection, which leads to spiraling debt and financial hardship,” says Rasmussen.

Topping a list of six things they are looking for is that BNPL products are regulated in the same way as other forms of credit.

A government consultation document examining the triggers of financial difficulties caused by the BNPL sector published last November, offered three possible options to address this including the application of the law on credit agreements and consumer credit to BNPL service providers.

The following Consumer NZ press release was released on Thursday morning.

Global pressure to curb buy-it-now and pay-later services

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

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

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

“At this time, there is no legal obligation for BNPL providers to ensure that their loans are suitable and affordable for their clients.

“Buy now, pay later is an attractive alternative to using a credit card and we recognize that there are many benefits, but vulnerable consumers may be caught off guard by the lack of protection, which leading to a spiral of debt and financial hardship.”

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

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

Consumer’s latest Sentiment Tracker survey found that “unmanageable debt” is now among the top three financial concerns. One in five New Zealanders are in debt with a buy-it-now service and 20% of users have paid for their BNPL purchases with a credit card, increasing the likelihood of being hit with interest.

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

“The cost of living is skyrocketing,” Rasmussen said. “As wages fail to keep up with inflation, more and more people will look to BNPL to manage their finances. We want to make sure these people don’t end up spiraling into debt. International pressure to Applying responsible lending requirements to BNPL providers has intensified over the past year after a BBC investigation into extreme cases of consumer harm in the UK.

On New Zealand’s shores, organizations such as Fincap have confirmed that vulnerable consumers are taking on unmanageable debt due to the lack of consumer protections on BNPL services.

The open letter from the global consumer alliance called on regulators to:

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

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