Action on buy now, pay later

The government has announced its intention to apply the Credit Contracts and Consumer Finance Act (CCCFA) to the buy-now, pay-later (BNPL) sector.

This will mean people using BNPL will receive similar protections to borrowers in other credit contracts, such as credit cards and personal loans. 

David Clark, the Minister of Commerce and Consumer Affairs, says the proposal is part of the government’s work to ensure New Zealanders are protected from potential financial harm while enabling continued access to low-cost credit.

Obligations are intended to be applied proportionately having regard to the nature of BNPL – and the absence of interest and credit fees – to allow the benefits of this type of finance to continue. 

All lenders in this sector will be required to comply with key requirements in the CCCFA, although smaller BNPL contracts will be exempt from the requirement to assess affordability.

When it comes to the CCCFA’s protections, key requirements that will apply to BNPL include:

• The application of general lender responsibilities, including helping borrowers make informed decisions, and treating them reasonably and ethically.

• Consumers will be protected from unreasonable default fees, while those facing unforeseen hardship can apply to the lender to have their repayment contracts varied.

• BNPL lenders will need to be part of an external dispute resolution scheme and provide details of this if borrowers make a complaint or hardship application.

• Consumers will be able to receive compensation and statutory damages from lenders breaching relevant CCCFA rules.

• BNPL lenders will be required to provide information to borrowers who miss payments about financial-mentoring services, and will have to disclose key information about credit contracts and any variations.

• Directors and senior management of BNPL lenders will have to be certified by the Commerce Commission to be fit and proper persons for their respective positions, and directors and senior management will be subject to due-diligence duties.

Assessing affordability 

Smaller loans below a threshold will be exempt from the CCCFA requirement to assess affordability if credit reporting is carried out. For loans above the threshold, BNPL lenders will be required to assess affordability.

The Ministry for Business, Innovation and Employment (MBIE) aims to undertake consultation later this year on the threshold for when affordability assessments are required – this is proposed to be $600, the form of assessments and draft regulations more generally. It is intended for final regulations to be made in 2023.

Specific requirements

Additional obligations will apply specifically to BNPL lenders exempt from affordability assessment requirements. 

For example, they will be obliged to carry out comprehensive credit checks with a credit-reporting agency, such as Equifax, Centrix or Illion.

Also, they will have to disclose repayment schedules and late fees on all purchases made using BNPL – not just when consumer credit contracts are first entered into. More details are available on MBIE’s website.