Calls for tougher rules on Buy Now Pay Later schemes are being pushed, arguing that the previous changes fell short.
Buy Now Pay Later (BNPL) has been available in New Zealand for around eight years. Though still a relatively new product, it’s used by one million Kiwis through one of the four main providers.
BNPL lets people buy goods or services and pay them off interest-free over several weeks. New Zealand’s main providers are Afterpay, Klarna, Zip, and Payright.
Missed payments trigger late fees.
A new report from Consumer NZ and FinCap—backed by Victoria University research—highlights concerns over the harm BNPL schemes are causing some borrowers.
Prior to September 2024, BNPL escaped consumer credit rules under the Credit Contracts and Consumer Finance Act, as the interest-free model excluded it from the definition.
Certain provisions of the Act now apply, requiring lenders to provide borrowers with key contract details and adhere to responsible lending obligations.
The new research reveals that all BNPL providers opted for credit checks and reporting over comprehensive affordability assessments.
This approach failed to prevent borrowers from accumulating problem debt, the report stated.
“The fact that BNPL providers must obtain a credit report on new customers and when increasing an existing customer’s spend limit is positive to a degree, in that it means the BNPL provider will have a more informed picture of the customer’s financial position. However, BNPL providers are not legally required to use the information obtained through the credit report to assess whether the customer can afford the loan.”
The report recommends mandating full affordability assessments for BNPL lending in New Zealand.
Report author Victoria Stace pointed out that the UK and Australia are adopting stricter affordability checks for BNPL. She argued this shows such assessments are feasible and that New Zealand’s current system falls short.
BNPL providers are still exempt from rules against unreasonable fees, and the report notes some maintain policies allowing “disproportionately high” late payment charges.
The report calls for fee caps on BNPL schemes.
“The problem with high late payment fees, or multiple late payment fees across purchases, is that they can lead to financial overcommitment/overindebtedness, resulting in consumers borrowing more money to repay BNPL debts or forgoing other essential goods and services.”
The report recommends regulating “quasi-BNPL” schemes, such as in-house payment plans offered by businesses for their own goods or services, the same way as traditional BNPL.
“From the consumer’s perspective, the service is the same: they receive a good or service early, must pay instalments and can be charged late fees if they default.”
Jake Lilley, FinCap’s senior policy adviser, said clients continue seeking mentors’ help with BNPL debts while running budget deficits.
Mentors reported that BNPL providers often adjust repayments to match clients’ affordability during hardship, but borrowers hesitate to cancel their accounts.
“They’re really worried about how they’ll survive without BNPL,” Lilley said.
“Almost viewing it like an emergency fund or an overdraft … it’s quite a harsh change to get off the treadmill of constantly borrowing for essentials. And so people weren’t opting to take up those hardship arrangements. It’s a really wicked problem… people are taking out KiwiSaver hardship to keep those accounts alive.”
He explained that people view these accounts as essential.
“We need to look at how people are responding to it and get smart in terms of protections to make sure we don’t get trapped.”
Lilley said Parliament must now grant the Financial Markets Authority the new powers needed to implement actions based on the report’s findings.
“While that progresses, we also need moves to licence debt collectors at the FMA so we are in a position to monitor the fairness of how unaffordable BNPL loans are collected over the coming years.”