The Ministry for Regulation believed competition among lenders, as well as Fair Trading Act provisions, were strong enough to prevent BNPL providers from ripping people off.
A spokesperson for one of the three BNPL providers in New Zealand, Afterpay, assured the Herald, “We have no intention of increasing our late fees.”
If an Afterpay user misses a repayment, they’re charged 25% of the value of their purchase up to $68.
The back story
In 2022, the Labour Government decided to change the CCCFA so that from the start of this month, BNPL providers need to follow the same rules as other lenders and ensure default fees are “reasonable”.
However, the coalition Government wants to exempt BNPL providers from this requirement because their business models are fundamentally different to traditional lenders.
For example, Afterpay doesn’t charge interest and stops users from borrowing more if they miss a repayment.
BNPL providers make most of their money by charging the merchants that allow shoppers to use their products to “buy now, pay later”.
MBIE in August advised Bayly that BNPL providers were well-placed to comply with rules from the start of September.
But in the previous two months, MBIE said BNPL providers raised concerns, particularly around the requirement for fees to only cover costs and losses related to a particular borrower’s default, not those related to the BNPL business more generally.
MBIE said cracking down too hard on late fees could force BNPL providers to charge merchants more.
With BNPL providers already charging merchants more than what banks charge for the use of credit cards, it worried excessive rules could drive BNPL out of the market altogether.
But, MBIE also recognised some borrowers were getting into debt spirals, opening accounts with new BNPL providers if their existing providers froze their account.
So, it suggested a compromise - exempting BNPL providers from the fee rules that apply to other lenders, but putting some conditions in place to prevent them from charging excessive fees.
Bayly to monitor fees
Seymour told the Herald he believed BNPL providers would set fees based on what they believed their customers were prepared to pay, and what they needed to cover their costs.
“That’s not something I think a politician can decide,” Seymour said.
Bayly had warned Cabinet that following Seymour’s lead “would not provide any consumer protections against excessive default fees”.
“If Cabinet chose this option, I would monitor the risk of excessive default fees, and if needed, come back to Cabinet in future to make necessary changes to the fee provisions.”
Indeed, Bayly told the Herald he would “closely monitor the risk of excessive fees”.
“The Cabinet process involves robust discussion and debate, and it is not unusual for ministers to have different views on the best way to achieve a particular policy goal,” he conceded.
“I am comfortable with where we have landed and the decision to exempt BNPL providers without any conditions, as this provides more flexibility and legal certainty for the providers.”
Could Seymour override Bayly on supermarket regulation?
This isn’t the first clash between Bayly (who is a minister outside of Cabinet) and Seymour.
Last week, Seymour rubbished calls for tougher regulation of the grocery sector by Grocery Commissioner Pierre van Heerden, which Bayly backed.
Prime Minister Christopher Luxon was snappy when asked about Seymour’s commentary on the matter.
“I want to be really clear: Andrew Bayly is the Minister for Commerce,” Luxon said.
Asked whether he supported regulating the supermarkets more heavily, Luxon responded, “Yes, I do have a lot of support for that, yes.”
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
