The Marton & Districts Budget Service worked with some clients who had multiple BNPL debts, with 21 the most they had come across for a single client. Photo / Bevan Conley
The Marton & Districts Budget Service worked with some clients who had multiple BNPL debts, with 21 the most they had come across for a single client. Photo / Bevan Conley
Rangitīkei budget advisers want full regulation of buy now, pay later schemes but say the Government's changes are a "baby step" in the right direction.
Commerce and Consumer Affairs Minister David Clark has announced a proposal aimed at stopping consumers from getting into unmanageable debt via buy now, pay later(BNPL) schemes.
"While for many, BNPL can be a useful way to spread the cost of large household purchases, we are trying to stop vulnerable people getting into a spiral of debt if lenders allow them to take on more than they can afford," Clark said.
The Government has agreed affordability checks - such as those for other credit contracts like credit cards and personal loans - should apply to BNPL loans above a threshold (proposed at $600). It will consult on options for how the checks should be carried out.
Smaller loans, under the threshold limit, will not have to go through the same process.
All providers must have hardship processes in place and belong to a dispute resolution scheme. Directors and senior managers will also need to be certified fit and proper by the Commerce Commission.
Marton & Districts Budget Service co-ordinator Christina Marcroft and senior financial mentor Cherie Duncan said they wanted to see full regulation of the schemes.
"We welcome the announcement - it's a step in the right direction but it's very vague," Marcroft said.
"We don't know whether the $600 threshold is a total at one time [for multiple BNPL schemes], or for any one transaction, or with one buy now, pay later scheme."
The Rangitīkei service worked with some clients who had multiple BNPL debts, with 21 the most they had come across for a single client.
"Each debt is probably under $50 but it's still unaffordable," Marcroft said.
"A lot have small amounts so the total adds up. It's not unusual to see so many that the value clients need to find is an extra $200 to $300 to manage them all."
People were already experiencing huge financial problems because of the cost of living crisis.
"BNPL doesn't help you out of the cost of living crisis, it just makes things worse. If they can service the debt that's fine, but we see the vulnerable who use it as a way to be able to get things - some of them are using it for essentials."
The service was increasingly dealing with complex cases that were difficult to resolve.
Clark said the Government was "taking action to help [people] avoid unmanageable debt, especially as the Christmas season looms" but Marcroft and Duncan said it was far too late to avoid the Christmas debt problem.
"The announcement is a baby step in the right direction," Duncan said.
"Our clients will continue to buy up things in the lead-up to Christmas."
Mortgage adviser Moira Hart says money owed to buy now, pay later schemes is "not a good debt to have". Photo / Jacob McSweeny
Mortgage Link Wanganui mortgage adviser Moira Hart said she saw some clients who had four or five BNPL debts.
"It can all get on top of you - if you can't keep up with that, it becomes a spiralling debt," Hart said.
"They become messy. Some people manage them really well but, unfortunately, some people don't. People don't always know what their limit is. They only just pay one off and put another one on or two or three on."
Banks looked at BNPL debts as part of their assessment of mortgage applications so she worked through them with clients before putting an application to a bank, Hart said.
"I'm not a great fan of the schemes and I relay that to my clients and tell them why. It's not a good debt to have. If you really don't need it, don't get it.
"People are struggling for Christmas but, if you're struggling now, you're going to be struggling next year. It's a real challenge to juggle those things.
"When you're going for a loan of any sort you have to be really tidy with your debt."
FinCap chief executive Ruth Smithers welcomed the announcement, saying BNPL lenders pulled in a quarter of their revenue from late fees.
"However, it appears there will still be a loophole open for lending under $600 that will never be affordable. We will keep working closely with financial mentors to understand the impact of the changes, and we will continue to call for the Government to close all loopholes."
Fincap is a non-government organisation that supports free financial mentoring services.
"Every day, financial mentors have been telling FinCap that these loans need to be regulated just like any others; $600 is a lot of money for a lot of whānau in Aotearoa," Smithers said.
FinCap would now focus on the lenders and the implementation of checks to ensure lending was not unaffordable, Smithers said.
"We now need the Government to bring regulation of debt collectors up to international standards in Aotearoa."
The Ministry of Business, Innovation and Employment (MBIE) aims to commence consultation on the detail, including the proposed threshold of $600 and what will apply above the threshold, later this year. It is intended that final regulations will be made in 2023.
