Introduction
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Proposed regulation of buy now pay later
1. 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.
2. BNPL providers are not currently required to comply with the Credit Contracts and Consumer Finance Act (CCCFA). This is because they do not charge interest or credit fees, nor do they take a security interest over goods. Concerns have been raised about BNPL causing financial hardship for some consumers.
3. On 31 November 2022, the Government 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, the Government intends that the obligations are applied proportionately, having regard to the nature of BNPL and the lack of interest and credit fees. This will allow the benefits of BNPL to be retained.
4. The Government has therefore also agreed:
- that BNPL credit amounts below a threshold would not be required to undergo the prescribed CCCFA affordability assessment, but would be required to undergo comprehensive credit reporting
- to consult on a threshold amount of $600, and to consult on 2 options for what assessments would apply over the threshold
- that BNPL providers will need to disclose certain key information before each purchase made using BNPL.
5. The accompanying exposure draft of the Credit Contracts and Consumer Finance (Buy Now Pay Later) Amendment Regulations 2022 (Draft Regulations) proposes to implement these decisions by amending the Credit Contracts and Consumer Finance Regulations 2004 (the Regulations). We are seeking further feedback on the details of the changes.
6. More information about the problem definition and Cabinet’s decisions are provided in the Cabinet paper and regulatory impact statement.
Process and timeline
7. Following the close of this consultation on 24 February 2023 we will consider the feedback and whether any changes are necessary to the Draft Regulations. We will also consider what additional guidance should be provided in the Responsible Lending Code in respect of BNPL.