EXPLANATION : Buy now, pay later has exploded into our lives.
People, especially young people, loved it, preferring it to credit cards and hire purchase.
Buy Now, Pay Later (BNPL) short-term consumer loans are interest-free, so people can use them to buy things they haven’t saved up for at no apparent cost.
This cheapness is because retailers add the actual cost of loans to the price of their goods (we all bear this cost), and you can get a BNPL account online in minutes.
* The secret “buy now, pay later” code of conduct that you are not allowed to see
* Government considers regulating ‘buy now, pay later’ lenders
* Minister spoke of buy now, pay later “a ticking time bomb”
BNPL was outside pesky responsible lending laws that require lenders to check borrowers can repay before extending credit.
What could go wrong?
A lot. So much so that BNPL could be the next industry to go unregulated, and the number of people missing payments from their accounts is growing rapidly.
This seems to confirm claims by financial mentors that many BNPL accounts were opened by people who could not afford to make repayments.
The Minister of Commerce and Consumer Affairs, David Clark, is indeed considering three options:
- Let the industry regulate itself, with a voluntary code
- Subject the BNPL to responsible lending laws
- Creation of a “lighter touch” regulation especially for BNPL
But it’s not a simple matter for Clark, whose latest foray into regulation to protect vulnerable people from lenders, really seems to have led to some non-vulnerable borrowers realizing they no longer qualify for loans.
Over 565,000 people have BNPL accounts, and many love them. Clark will be wary of upsetting them.
But what seemed so great, and was touted as allowing people to split payments for essential things like appliances and dentistry, is now down to the consumer.
A growing number of people are missing BNPL payments and paying late fees, but research in Australia shows that people sometimes skip meals or miss payments on rent and electricity bills, in order to make BNPL payments .
An unknown number of people are using debt to repay BNPL. One in five people use a credit card to make their BNPL repayments.
Financial mentors say people who cannot afford BNPL refunds get multiple accounts. Desperate people are “piling” BNPL accounts on loans they already have. More BNPL loans are ending up with debt collectors, they say.
Andrew Henderson of the Dunedin Budget Advisory Service told the government: ‘We are seeing many consumers with multiple BNPLs who cannot afford their essential costs because of this. Consumers are trapped in the cycle of debt with BNPL, which impacts their future and their mental health.
And to top it off, BNPL lenders openly claim to retailers that accepting BNPL makes people spend more. Young women are a particular target of BNPL lenders.
Calls for regulation frustrate people who use BNPL cautiously.
They don’t want to have to answer intrusive financial questions to open an account or have their credit limits lifted. Regulation adds costs. They want BNPL to remain interest-free.
As Adam Bright told the government in his brief on the bill, “I’ve used two different vendors and had excellent experiences with both.”
He appreciated that there were no account fees.
“I’ve never been behind on payments and I think it’s a great tool for buying items by spreading payments,” he said.
It was really useful at a time when his budget was squeezed by rising inflation, allowing him to make expensive purchases.
“It actually helped me save money while also stimulating the economy with my purchases,” he said.
A BNPL user said Things it had become more prominent since changes to Clark’s Responsible Lending Rule made it harder for low-income people to get loans.
“It seems that these responsible lending rules … do nothing to help those of us on the bottom aspire to anything beyond the usual meager existence that a benefit provides,” he said. .
“Since BNPL’s arrival in New Zealand, the facility has been a boon for those of us on low fixed incomes.”
Most BNPL account users manage their repayments well, he said.
While this is true, these days politicians are less willing to turn a blind eye to loan abuse.
We should know within a few weeks how Clark thinks BNPL should be regulated.
He has been fairly quiet, even refusing to publish a code of conduct drawn up by BNPL lenders, in which they hope he will let them operate.
It is now available on the Department for Business, Innovation and Jobs website, and it is weaker than it will be willing to accept.
Under the code, even checking a person’s credit report (which shows their credit score, recent payment history and loans they have) would be voluntary.
And, it’s not good enough for the difficulties. Financial mentors trying to help people struggling with debt find it difficult to deal with BNPL lenders.
If Clark goes there, this code will need a big rewrite.