Buy now, pay later: Government offers affordability checks for loans over $600

BNPL, like Laybuy or Afterpay, is unsecured short-term credit to pay for goods and services. It is often used for large purchases like household appliances. Interest is not charged, but providers have late fees for consumers who miss a payment.

“While for many BNPL can be a useful way of spreading the cost of large household purchases, we try to prevent vulnerable people from going into debt if lenders allow them to take on more than they can afford. “said Commerce and Consumer Affairs Minister David Clark.

“The BNPL sector is clearly a grassroots innovation. The amount of money spent with BNPL in New Zealand has grown to $1.7 billion in 2021 from $755 million in 2020. That’s why we need to make sure that these products and the companies that offer them properly serve consumers and can be held accountable.”

Currently, BNPL’s services are not subject to the Credit Agreements and Consumer Credit Act 2003 (CCCFA), which provides consumer protection by requiring lenders to review the affordability of loans.

But Clark thinks the CCCFA can be applied in a “proportionate” way to strike a balance between consumer protection and the possibility of continued access to low-cost credit.

The Department for Business Innovation and Employment (MBIE) plans to consult on the proposal from the end of this year with final regulations passed in 2023.

He will seek comments on the $600 threshold and the controls that will apply above. This could be a full affordability assessment required under current regulations or a less detailed audit than what is currently required.

While the government is not proposing to apply checks to loans below the $600 threshold, it still wants full credit reports to be produced. Suppliers will also be required to put in place processes in case of difficulties and to adhere to a dispute resolution system. Directors and senior executives will need to be certified by the Commerce Commission.

A spokesperson for Afterpay said the provider has “always advocated for regulation that drives good outcomes for consumers, is fit for purpose and proportionate.”

“We welcome the government’s recognition that BNPL is distinctly different from traditional credit and that different regulation is appropriate.

“Getting the right regulatory balance will mean that consumers won’t be pushed back into credit cards and payday loans – products that benefit people who get into debt. We will continue to advocate for the government to take this approach.”

Laybuy chief executive Gary Rohloff said the supplier supports an “enhanced regulatory framework that recognizes BNPL’s unique characteristics, but also protects vulnerable consumers and ensures they don’t incur debt they cannot afford. afford”.

“While we still need to work out the details of today’s announcement, we already vet every new customer, use the services of an independent dispute resolution agency, and have a strong policy in place. difficulties.

“We look forward to engaging with the government through the consultation process and ensuring that the regulations strike the right balance and allow consumers to continue enjoying the benefits of BNPL.”

There have been some problems with the implementation of the amendments to the CCCFA which came into force in December last year.

Intended to protect vulnerable borrowers from loan sharks who lend money without regard to the recipient’s ability to repay, the changes required banks to take a forensic approach to the spending habits of potential borrowers to ensure that they could actually repay a loan.

It was followed by a “significant drop in mortgage activity”, according to CoreLogic, with people complaining that their home loans were decreases due to spending on takeout and gifts.

The government moved in to make adjustments in Marchincluding clarifying that lenders do not need to investigate current living expenses from recent banking transactions if a detailed breakdown of future living expenses is provided.

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