Government to regulate ‘buy now, pay later’ loans by year’s end

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

Commerce and Consumer Affairs Minister David Clark said ‘buy now, pay later’ (BNPL) lenders should conduct better checks before opening accounts.

“For many people, BNPL is a convenient way to spread the cost of purchasing a large household, but it also prevents vulnerable people from spiraling into debt if lenders allow them to underwrite more than they can afford. I’m trying to stop,” he said. .

BNPL loans are short term interest free loanbut they are not subject to the responsible lending laws that cover other lenders.

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Financial mentors are lobbying for them to be regulated and the number of people missing their BNPL loan repayments is increasing.

Percentage of BNPL loan borrowers in October Late payments to lenders AfterPay, Genoa Pay, ZipPay and Laybuy among others rose to 9%, data from credit bureau Centrix showed.

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

Commerce and Consumer Affairs Minister David Clark said BNPL loans would be regulated.

Robert Kitchen/Staff

Commerce and Consumer Affairs Minister David Clark said BNPL loans would be regulated.

Clark said the government has decided that BNPL lenders must undergo affordability checks before making BNPL loans of $600 or more.

That way, borrowers who take out these large BNPL loans will get the same protections as those who take out credit cards and personal loans, he said.

All BNPL lenders are also required to provide more complete information to credit bureaus that compile personal credit reports.

They will have to have a hardship process in case the borrower has trouble repaying. Lenders must also belong to a dispute resolution scheme.

Clark made the announcement at Oakland Central Budget Consultants in Balmoral, an Oakland suburb.

Financial leaders are lobbying to regulate BNPL loans, and lenders are accepting it. some regulation is inevitable.

Last week, Mentors released a document outlining their concerns sent to Clark.

Dunedin Budget Advisory Service Manager Andrew Henderson said: A constant cycle of debt that leads to a debt spiral is terrifying. ”

“We are no longer a ‘save just in case’ country, but a country of quick gratification because we know so little about the debt trap that BNPL will create,” he said.

Clark said the Department of Business, Innovation and Employment will soon discuss regulations covering BNPL lenders and hopes the regulations will be implemented next year.

“By applying credit contract and consumer finance laws in an appropriate manner, we strike the right balance between protecting consumers and enabling continued access to low-cost credit.” Clark said.

Centrix data suggests that the rise in BNPL has come at the expense of credit cards.

According to Centrix’s latest monthly credit report, credit cards continue to be canceled in contrast to the continued rise in BNPL.

“There are about 2.1 million Kiwi consumers with credit cards. The numbers are down 33% since 2019.”

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