Commerce and Consumer Affairs Minister Duncan Webb says whilst the buy now pay later (BNPL) sector, currently offering unregulated credit to consumers, will be brought under the Credit Contracts and Consumer Finance Act (CCCFA) umbrella, BNPL loans will be exempt from affordability and suitability assessments. Instead BNPL lenders will have to complete comprehensive credit reporting when customers sign up or increase their credit limit.
Additionally Webb says there'll be "a wider review" of the CCCFA, and some additional exemptions for certain types of lending, with terms of reference to follow.
"We will be extending an exemption for voluntary targeted rate scheme loans, these low-cost loans are usually for sustainable home improvements like insulation, administered by local and regional councils," says Webb.
“This will carve them out from the CCCFA and avoid unnecessary compliance costs. I expect regulations to give effect to this exemption to be made by the end of the year."
"And we will also be developing a permanent exemption from certain CCCFA obligations for people affected by emergency events. Based on an assessment of the 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," says Webb.
He says the details of BNPL regulations will be announced soon.
Below is Webb's full press release.
Government acts on consumer credit protection
- New Buy Now Pay Later regulations
- Review of Credit Contracts and Consumer Finance Act
- Exemptions for targeted rates
- Extended exemptions for credit in emergency events
Increased protections for consumers using Buy Now Pay Later (BNPL) credit contracts have been announced by Commerce and Consumer Affairs Minister Dr Duncan Webb.
“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 BNPL regulations,” Duncan Webb said.
“BNPL can be a convenient and low-cost form of credit for many people as they do not charge interest, however current rules have no protections for consumers who will struggle to make repayments,” Duncan Webb said.
In October 2022, 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 been announced today.
“We’ve recognised that 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.
“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 their credit limit.
“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.
“Today, I’m also announcing a wider review of the CCCFA, and some additional 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. Terms of reference will be announced in due course.
“We will be extending an exemption for voluntary targeted rate scheme loans (these low-cost loans are usually for sustainable home improvements like insulation) administered by local and regional councils.
“This will carve them out from the CCCFA and avoid unnecessary compliance costs. I expect regulations to give effect to this exemption to be made by the end of the year.
“And we will also be developing a permanent exemption from certain CCCFA obligations for people affected by emergency events.
“Based on an assessment of the 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 today are intended to protect Kiwis who need access to credit, while also ensuring an effective, competitive and responsive market for credit.” Duncan Webb said.
*You can find our Of Interest podcast episode on the BNPL sector here.
5 Comments
The only reason the CCCFA amendments were passed was to target payday lenders like these guys and the clothing trucks. Now Webb has decided to exempt them but keep the onerous regulations on banks and more responsible lenders.
The vulnerable borrowers this was supposed to protect will be able to rack up thousands in debt with no oversight….
No, the CCCFA was intended to cover payday lenders who charged 150% interest on short term loans and mobile truck shops. Not 4 week interest free small product laybuys like Afterpay. The problem is that because Afterpay invented a new term called "Buy Now, Pay Later" and was exempt from the regulations because they didnt charge interest, everyone else jumped on the bandwagon and called themselves BNPL whilst lending $5-$10k over 6-12 months. Its these loans that are in default, not the $60 Afterpayment for a pair of shoes.
What is interesting is that bringing the genuine BNPL providers under the CCCFA will mean they will need a credit licence, and if they get a credit licence they will have to start reporting credit histories of their customers, so Afterpay transactions will now be visible to other credit providers. And of course, now they are licenced the BNPL providers will be free to transition their customers onto standard credit cards and larger loans that do incur interest. That's how Klarna in Europe makes all its money - not from the 4 week interest free funding of retail purchases, but from the provision of credit cards and loans for larger amounts. How many millions of loyal customers does Afterpay have now?
There's nothing new about buy now, pay later. The new thing is putting it on an App. https://www.interest.co.nz/personal-finance/120166/grant-halverson-rise-and-fall-buy-now-pay-later-sector-and-what-future-may
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