New options on the table for buy now, pay later rules

Questions remain over how BNPL will end up being regulated. Photo / Andrew Warner

Commerce and Consumer Affairs Minister Duncan Webb is considering additional ways of regulating the buy now, pay later (BNPL) sector to those proposed in draft regulations.

Consumers who use BNPL products can get access to goods or services now, but pay for them later in a series of interest-free instalments.

BNPL providers make money by charging merchants that offer their products, and consumers who fail to meet their repayment obligations.

The Ministry of Business, Innovation and Employment (MBIE) consulted between December and March on how the sector should be regulated.

It received 32 submissions, which it plans to publish in the coming month.

In the meantime, a spokesperson for Webb told the Herald “alternative options” were being considered on the back of submitters’ feedback.

The spokesperson wouldn’t say if Webb was looking to regulate the sector more heavily or lightly than initially proposed.

They said Webb had “every intention” of finalising the regulations in this term of Government, before the October election.

The BNPL sector has faced some troubles lately. Receivers were appointed to Openpay in February, Laybuy Group Holdings went into a trading halt the month before and Australian firm Humm announced it would close down its Kiwi BNPL operation last year.

The ministry proposed requiring BNPL providers to do affordability tests on users seeking to borrow more than $600.

For credit below this threshold, it wanted BNPL lenders to do comprehensive credit checks and report back to credit agencies.

BNPL provider Afterpay contacted the Herald last month to share its view that proposed regulations were too heavy-handed.

It argued its product included features that protected vulnerable borrowers. For example, it freezes a customer’s account as soon as a payment is missed.

Afterpay said only 2 per cent of purchases made by its users incurred late fees.

It suggested the Government exempted BNPL lenders from credit reporting if they used PayWatch – a BNPL indebtedness indicator the industry developed with credit bureau Centrix.

PayWatch alerted BNPL providers if a new applicant had an active overdue account with another provider.

Afterpay believed the fact PayWatch provided information in real-time and captured younger adults with “thin or blank traditional credit files with the credit-reporting bureaus” made it better suited to BNPL.

However, FinCap – an organisation that represented financial mentors – worried there wasn’t a clear requirement around what a BNPL lender should do if it saw an applicant had an overdue account with another provider.

It feared borrowers could open accounts with multiple BNPL providers and rack up large amounts of debt without undergoing affordability tests.

FinCap argued MBIE should require BNPL lenders to do affordability tests regardless of how much someone wanted to borrow.

Meanwhile, Afterpay suggested the affordability test threshold should be higher than proposed, at $1000.

The spokesperson for Webb said they had nothing to add on where the regulations might land, as the matter was under “active consideration”.

The handful of interested parties the Herald contacted had no insight into what the alternative options being considered were.

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.