Buy now, pay more for it later

The fairly recent introduction of buy-now-pay-later into New Zealand has been a convenient and low-cost form of credit for many people, but has inadequate protections for consumers who may struggle to make repayments.

Consumers using it can access goods or services now and pay for them later in a series of interest-free instalments. But though it provides an alternative form of credit to consumers, funded by a charge on participating businesses, there are serious concerns.

These products are subject to the Fair Trading Act 1986, but because they don’t charge interest, credit fees or take a security interest over goods, buy-now-pay-later providers were not required to comply with the rules under the Credit Contracts and Consumer Finance Act (CCCFA) until October 2022, when Cabinet agreed to bring buy-now-pay-later within the act.

This was to provide more protection to consumers. Key consumer protections from the Consumer Finance Act proposed in 2022 included general lender responsibilities, such as treating borrowers reasonably and ethically; protecting borrowers from unreasonable default fees; and borrowers facing unforeseen hardship could apply to the lender to have their repayment contract varied.

In addition, buy-now-pay-later lenders would need to be part of an external dispute resolution scheme and provide details of the scheme if borrowers made a complaint or a hardship application. Lenders would also be required to provide information about financial mentoring services to borrowers who missed payments.
 

But Commerce and Consumer Affairs Minister Dr Duncan Webb announced last month that buy-now-pay-later lenders would be required to complete comprehensive credit reporting but that “Cabinet has accepted the need to exempt buy-now-pay-later loans from affordability and suitability assessments – which would be too onerous for these short term, low value, interest-free loans”.

This is not good news for consumers. A credit check requirement is not an adequate assessment of affordability. Every dollar that is lent to a consumer without an affordability assessment is putting that consumer at risk of unmanageable debt and may cause harm to the financially vulnerable.

And now the National Party is campaigning on reducing what limited consumer credit protection there is, with its Commerce and Consumer Affairs spokesperson Andrew Bayly arguing that the Consumer Finance Act has “stifled access to credit and resulted in borrowers being subjected to highly intrusive questioning from their bank, with every purchase, membership, or subscription up for scrutiny”.

Bayly also said “National will maintain tight restrictions on predatory lenders, but significantly reduce the scope of Labour’s other changes to the CCCFA.” National would also repeal the Conduct of Financial Institutions Act (CFA), which will introduce a regulatory regime in March 2025, aimed at ensuring financial institutions treat their customers fairly.

I’m the founder of Ngā Tāngata Microfinance (NTM), which was established in 2010 and works nationally through community financial mentors to make available interest- and fees-free loans, now up to $5,000, repayable over a two-year maximum term. Kiwibank provides the loan capital to make this service to the community possible. This service was desperately needed because New Zealand was in an outlaw situation, with predatory lenders in every low-income neighbourhood.

When the Financial Markets Authority and Reserve Bank carried out conduct and culture reviews of New Zealand’s banking and life insurance sectors in 2018 and 2019, they found that misconduct was rife. That discovery finally led to changes to the Consumer Finance Act, increasing consumer protections.

Then buy-now-pay-later added new risks for consumers, with no checks on how many accounts a consumer can collect, or whether a consumer can afford to pay off each account on time.

Consumers can buy now and pay later, but every late payment incurs a charge, and we’re seeing increasing numbers of loan applicants at NTM in financial strife caused by their inability to meet due dates for payments on numerous buy-now-pay-later accounts, so late-payment fees compound.

The vital importance of the Consumer Finance Act and the CFA is revealed in recent research from Te Ara Ahunga Ora Retirement Commission which shows 55 percent of New Zealanders are struggling with their financial situation – up from 38 percent in 2021. And of those surveyed, 51 percent say they are "starting to sink, or treading water" and another almost 4 percent of those surveyed are already "sinking badly".

This research also confirms that women, Māori and Pacific peoples are being hit the hardest. That report also found that of those in the 18-34 age group, 51 percent were in an uncomfortable financial position, and 47 percent were worrying about their finances from pay to pay.

Hardship is widespread and consumer protections are vitally necessary. When people are sinking, you don’t drill a hole in the lifeboat.