Review into lending laws
Increased protections for consumers using buy-now, pay-later (BNPL) credit contracts have been announced by the government.
Duncan Webb, Minister of Commerce and Consumer Affairs, says “striking a balance between reducing risk for vulnerable consumers and ensuring fit-for-purpose rules” for the sector has been front of mind in considering regulations.
“BNPL can be a convenient and low-cost form of credit for many people as they do not charge interest, but current rules have no protections for consumers who will struggle to make repayments,” he adds.
In October 2022, the cabinet agreed to bring BNPL within the Credit Contracts and Consumer Finance Act (CCCFA).
After consulting with the public in December, improvements to the proposed draft regulations have now been unveiled.
“We’ve recognised some adjustments are necessary to make sure the regulations are workable and proportionate, and consumers can continue to enjoy the benefit of these interest-free loans,” says Webb.
“Cabinet has accepted the need to exempt BNPL loans from affordability and suitability assessments – that would be too onerous for these short term, low value, interest-free loans.
“Instead, BNPL lenders will be required to complete comprehensive credit reporting when customers sign up or increase credit limits.
“The details of these regulations will be announced soon. BNPL lenders will have a grace period to put in place systems and processes to meet the new requirements.”
The government has also announced a wider review of the CCCFA and some extra exemptions for certain types of lending.
“It’s important to keep the act up to date to ensure it continues to strike the right balance between protecting vulnerable consumers, and having a healthy and effective market for credit,” says Webb. “Terms of reference will be announced in due course.
“We will be extending an exemption for voluntary targeted rate-scheme loans administered by local and regional councils. These low-cost loans are usually for sustainable home improvements like insulation.
“This will carve them out from the CCCFA and avoid unnecessary compliance costs. I expect regulations to give effect to this to be made by the end of the year.
“We will also be developing a permanent exemption from certain CCCFA obligations for people affected by emergency events.
“Based on an assessment of temporary exemptions in place after the Auckland floods and Cyclone Gabrielle, we see a case for something more permanent especially as these events are becoming more frequent.
“All the changes announced are intended to protect Kiwis who need access to credit, while also ensuring an effective, competitive and responsive market for credit.”
