Buy Now Pay Later

What is Buy Now Pay Later?

Buy Now Pay Later (BNPL) is a relatively new and fast-growing credit alternative in New Zealand. By using BNPL, consumers can get access to goods or services now but pay for them later in a series of interest-free instalments.

BNPL providers are not currently required to comply with the rules under current consumer credit contract legislation - the Credit Contracts and Consumer Finance Act (CCCFA). This is because they do not charge interest, credit fees or take a security interest over goods. BNPL products are subject to the Fair Trading Act 1986, and some BNPL lenders offer other products which are CCCFA regulated, such as credit cards.

While there are benefits from BNPL to consumers, businesses and the wider economy as an alternative to other forms of credit, the Government understands there are concerns that for some people, the use of BNPL will be unaffordable and unsuitable, and could result in financial hardship.

Concerns of financial hardship

Financial mentoring organisations, who work to help New Zealanders in financial difficulty, have made MBIE aware that BNPL could be creating financial hardship for some consumers.

Financial hardship can take a range of forms. Consumers may be unable to make payments on BNPL, with any missed payments adding to the debt they face through late payment fees. It could also mean that consumers who do meet their BNPL payment obligations are not able to afford other expenses (such as a power bill or groceries) because the payment instalment is collected automatically via a debit card or credit card.

Consultation

In October 2022, the Government agreed to apply the Credit Contracts and Consumer Finance Act 2003 (CCCFA) to BNPL. MBIE opened consultation on 19 December 2022 to seek feedback on the proposed regulations, including a proposed threshold of $600 and what will apply above the threshold. Stakeholders can provide feedback from 19 December 2022 to 10 March 2023. Following this consultation, it is expected that the final regulations will be made later in 2023. 

Read more about the consultation and have your say

MBIE previously consulted on BNPL in late 2021. This consultation focussed on understanding how BNPL could trigger financial hardship for consumers, to inform how to achieve an effective BNPL sector - one where the risks of financial hardship are balanced against the benefits of BNPL. 

Read more about this consultation and submissions

New regulations

The Government has agreed to apply the CCCFA to BNPL, so consumers using this form of credit will receive many of the same protections as borrowers in other consumer credit contracts – like credit cards and personal loans. However, obligations are intended to be applied proportionately, having regard to the nature of BNPL and the lack of interest and credit fees, to allow the benefits of BNPL to be retained.

Key changes

Key protections from the CCCFA are outlined below:

• General lender responsibilities will apply, including assisting borrowers to make informed decisions, and treating them reasonably and ethically.
• Borrowers will be protected from unreasonable default fees.
• Borrowers facing unforeseen hardship can apply to the lender to have their repayment contract varied.
• BNPL lenders will need to be part of an external dispute resolution scheme and provide details of the scheme if borrowers make a complaint or hardship application. Consumers will be able to receive compensation and statutory damages from lenders who breach relevant CCCFA rules.
• BNPL lenders will be required to provide information to borrowers who miss payments about financial mentoring services.
• BNPL lenders will have to disclose key information about credit contracts and any variations
• Directors and senior management of BNPL lenders are required to be certified by the Commerce Commission to be fit and proper persons for their respective positions.
• Directors and senior management will be subject to due diligence duties.

There will also be some additional obligations that will apply specifically to BNPL lenders:

• They must carry out comprehensive credit checks with a credit reporting agency, such as Equifax, Centrix or Illion.
• They must disclose the repayment schedule and late fees when every purchase is made using BNPL, not just when the consumer credit contract is first entered into.

Assessing affordability will depend on the size of the loan

Smaller loans below a threshold will be exempt from the CCCFA requirement to assess affordability. For loans above the threshold, BNPL lenders will be required to assess affordability.

MBIE aims to commence consultation on the detail, including a proposed threshold of $600 and what will apply above the threshold, later this year. It is intended that final regulations will be made in 2023.