Consumer NZ calls for regulation of buy now pay later sector to help avoid debt trap

Buy now pay later has become a popular way to pay for goods and services online. Photo / File

Consumer New Zealand is calling for regulation of the buy now, pay later sector to protect vulnerable customers from irresponsible lending.

Buy now, pay later involves consumers paying for an item or service in instalments while getting the goods up front.

Providers don't charge interest but there can be hefty fees if users miss instalment payments. But the lack of interest means the financial product doesn't currently fall under the Credit Contracts and Consumer Finance Act.

Gemma Rasmussen, Consumer NZ head of campaigns and communications, said at the moment there was no legal obligation on buy now, pay later providers to ensure their lending was suitable and affordable for their customers.

"Buy now, pay later is an attractive alternative to using a credit card and we recognise that there are a lot of advantages, but vulnerable consumers can be caught out by the lack of protections, resulting in debt spirals and financial hardship."

Rasmussen said Consumer had written to the Minister of Commerce and Consumer Affairs asking the Government to regulate these services.

It also had the support of other organisations, such as Fincap, Salvation Army, Christians Against Poverty and Debtfix.

In November the Government sought feedback on the relative benefits and costs (including financial hardship) of buy now, pay later.

Consumer has now also joined other advocates from nine countries to target legal loopholes that enable buy now, pay later (BNPL) businesses to avoid credit regulation.

Consumer NZ added its name to the list alongside consumer advocates in Australia, the US, Sweden, Denmark and the UK, which have all had widespread growth in the buy now, pay later market.

"Advocates are asking for sensible regulation to apply to buy now, pay later so that vulnerable consumers are protected from irresponsible lending."

In an open letter the global consumer alliance had asked regulators to regulate the products in the same way as other forms of credit, require merchants to provide an option that allowed for full payment at the time of purchase, put an obligation on providers to undertake affordability checks, prohibit providers from targeting children or people in financial hardship, enable consumers to have access to redress and ensure regulators monitor and report on the impact of the product for different consumers.

Rasmussen said its latest sentiment tracker research found "unmanageable debt" was now in the top three financial concerns.

One in five New Zealanders have debt with a buy now, pay later service and 20 per cent of users paid for BNPL purchases using a credit card, increasing the likelihood of being hit with interest.

She said buy now, pay later was also now being offered as a payment method by some providers for essential items like groceries and utilities and credit limits could extend to thousands of dollars.

"The cost of living is skyrocketing," Rasmussen said. "As wages fail to keep up with inflation, there will be more people turning to BNPL to manage their finances. We want to ensure those people don't find themselves in a debt spiral."