Home Web marketing The government will regulate “buy now, pay later” loans by the end of the year

The government will regulate “buy now, pay later” loans by the end of the year

0

Buy now, pay later loan providers should be regulated to reduce the risk of vulnerable users falling into a spiral of debt.

Buy now, pay later (BNPL) lenders would be required to do better checks before opening accounts, said Commerce and Consumer Affairs Minister David Clark.

“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. allow,” he said. .

BNPL loans are short-term, interest-free loans, but they are not covered by responsible lending laws covering other lenders.

READ MORE:
* New Zealand consumer calls for tighter control of buy-it-now and pay-later services
* The buy now, pay later dilemma: How regulated should the latest form of consumer debt be?
* Minister spoke of buy now, pay later “a ticking time bomb”

Financial mentors have lobbied for regulation, and the number of people defaulting on BNPL loans is on the rise.

By October, the proportion of BNPL loans from borrowers who were behind in their repayments to lenders like AfterPay, Genoa Pay, ZipPay and Laybuy had risen to 9%, according to data from credit reporting firm Centrix.

Clark said $1.7 billion was spent by buyers using BNPL last year, up from $755 million the year before.

Commerce and Consumer Affairs Minister David Clark said BNPL lending will be regulated.

ROBERT KITCHIN/Stuff

Commerce and Consumer Affairs Minister David Clark said BNPL lending will be regulated.

Clark said the government decided that BNPL lenders would be required to carry out affordability checks before issuing BNPL loans of $600 or more.

This would give borrowers who take out these larger BNPL loans similar protections to borrowers using credit cards and personal loans, he said.

All BNPL lenders should also provide more comprehensive information to credit reporting companies, which compile individuals’ credit reports.

They should have difficulty process when borrowers find it difficult to repay. Lenders should also belong to a dispute resolution system.

Clark made his announcement at Auckland Central Budgeting Consultants in the Auckland suburb of Balmoral.

Financial mentors have pushed for BNPL lending to be regulated, and lenders have come to accept that some regulation is inevitable.

Last week, the mentors released documents they sent to Clark outlining their concerns.

Andrew Henderson, Director of Dunedin’s Budget Advice Service, said: “Many BNPLs destroy people’s ability to manage their day-to-day finances. The constant cycle of debt leading to spiraling debt is terrifying.

“We are no longer a ‘rainy day’ nation, but an instant gratification nation with little understanding of the debt trap caused by BNPL,” he said.

Clark said the Department for Business, Innovation and Jobs would consult soon on regulations that would cover BNPL lenders, and he hoped regulations would be in place next year.

“We will strike the right balance between consumer protection and the possibility of continued access to low-cost credit by applying the law on credit agreements and consumer credit in a proportionate way,” said Clark.

Centrix data suggests BNPL’s rise has come at the expense of credit cards.

Contrary to BNPL’s continued rise, credit cards continued to be cancelled, Centrix’s latest monthly credit report showed.

“There are nearly 2.1 million Kiwi consumers who have credit cards. However, the number of multiple credit card holders has declined by 33% since 2019 as many people chose to pay off and close their accounts during the pandemic,” he said.