Buy Now Pay Later Discussion Document

Buy now pay later discussion document

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16 December 2021
Buy Now Pay Later Project Team
Consumer and Competition Policy Team
Building, Resources and Markets
Ministry of Business, Innovation and Employment
PO Box 1473
Wellington 6140
By email: [email protected]
Buy-Now, Pay-Later Discussion Document
1. Introduction
Thank you for the opportunity to make a submission on the Buy-Now, Pay-Later (BNPL)
Discussion Document. This submission is from Consumer NZ, an independent, non-profit
organisation dedicated to advocating on behalf of New Zealand consumers. Consumer
NZ has a reputation for being fair, impartial and providing comprehensive consumer
information and advice

Contact: Aneleise Gawn
Consumer NZ
Private Bag 6996
Wellington 6141
Phone: 04 384 7963
Email: [email protected]
2. General comments
Consumer NZ supports regulation of BNPL services. Unlike other lenders, BNPL providers
have no obligation to ensure their lending is responsible. This is causing harm to
consumers and needs to be addressed

We do not consider maintaining the status quo or introducing an industry code will
provide adequate protection for consumers. Other countries are taking steps to regulate
the BNPL sector and we recommend the New Zealand government does the same

Without regulation, the risk remains that consumers will be harmed by using BNPL

We also consider other forms of deferred payment should be brought under the credit
regime. For example, consumers are often persuaded to purchase expensive mobile
phones on contracts that they pay off over several years. In our view, this is a form of
credit and should fall under the Credit Contracts and Consumer Finance Act (CCCFA)

3. Answers to questions
Our answers to specific questions are set out below

Thank you for the opportunity to provide comment. If you require any further
information on the points raised, please do not hesitate to contact me

Yours sincerely
Jon Duffy
Chief Executive
Submission on Buy-Now, Pay-Later: Understanding the triggers of financial
hardship and possible options to address them
Your name and organisation
Name Aneleise Gawn
Organisation (if Consumer NZ
Question 1: Do you agree with our assessment of what the benefits are from
BNPL? Yes / No / Not sure? Are there others? Please provide details

Yes, we agree with the benefits set out in the discussion document

Question 2: As a consumer (or consumer representative), please outline what
are the benefits of BNPL?
Feedback we have received indicates BNPL is a popular choice with consumers. When
instalments are repaid on time, it can offer a lower cost alternative to credit cards and
other forms of short-term credit. It also allows consumers to spread the costs of their
purchase over a longer period and take advantage of sales when they occur. BNPL also
provides instant access to goods and services that the consumer may not otherwise be
able to afford

Question 3: As a business accepting BNPL to pay for goods and services, please
outline the benefits of BNPL? If you are a small business, are there any
additional benefits from accepting BNPL?
No comment

Question 4: Do you agree with our assessment of how BNPL will evolve in New
Zealand? If not, please provide details

We agree BNPL will continue to grow and evolve in New Zealand and this is likely to
disrupt the credit and payment industries, although more extreme disruption may be
countered by mainstream banks becoming more active with BNPL offerings. However,
irrespective of the degree of disruption, without regulation, we are concerned the
evolution of BNPL in New Zealand will result in an increase in financial hardship for

Question 5: How do you think emerging BNPL business models e.g

partnerships with credit cards, banks etc. will impact consumers? Please
provide details
Although emerging BNPL business models may have some positive impacts on
consumers, we are concerned the unrestrained growth in the sector and emerging
business models will also have negative impacts on consumers

For example, the new service Bundll can be used anywhere that accepts a Mastercard. It
doesn’t rely on a retailer signing up to the scheme and no payment is required up front

This means a consumer could purchase almost anything, without parting with any money
at the time of purchase. So, a consumer could potentially use Bundll to pay for a night at
the pub, alcohol, Lotto, betting at the TAB, online casinos etc. In our view, this is likely
to encourage impulsive and socially irresponsible spending. And although personal
responsibility plays a role and a consumer could do the same using a credit card, they
would be covered by the protections in the CCCFA when doing so

Consumers can “snooze” or delay their Bundll repayments as often as they like by
paying a $5 fee. Although this may seem like a useful option for consumers it could also
mean the purchaser ends up paying significantly more for their purchase than the
original cost

We consider these sorts of developments pose a serious risk of harm to some consumers
and ought to be regulated

Question 6: Do you agree or disagree with our summary of the types of
financial hardship that could occur from BNPL? Please provide details
We agree with the summary of the types of financial hardship that can occur from BNPL

In particular, we agree financial hardship can occur both when instalment payments are
missed, and when they are not missed

Question 7: As a consumer (or consumer representative), have you faced
financial hardship from BNPL? Yes / No / Prefer not to answer? If yes, under
what circumstances have you faced financial hardship from BNPL? Please select
all that apply and provide details, if possible:
• You had multiple BNPL accounts
• Your credit limits were increased beyond what you could afford
• Because of the timing of your BNPL instalments and other expenses
• Because as a household, you were unable to afford the BNPL instalments
• You focused on the first payment rather than the total cost of the product
or service
• You responded to BNPL marketing and as a result purchased more than
you could afford
• You missed an instalment and faced missed fees (default fees)
• Your circumstances changed (e.g. change in employment) and you were
no longer able to afford the instalments
• Other
We have heard anecdotal evidence of financial hardship arising from BNPL from financial
mentors and other consumer organisations. For example, we have heard of consumers in
financial hardship with up to eleven BNPL debts and debts totalling more than $3000

Others are paying off their BNPL debts before putting petrol in their cars or paying their
electricity bills. Increasingly, BNPL is being used by vulnerable consumers to plug the
gaps when they are struggling to make ends meet

As a result of our concerns about BNPL and the fact it falls outside of the CCCFA, we
conducted a nationally representative survey in April and May 2021 of 2001 people. A
total of 752 of the 2001 respondents had used BNPL

Our survey found close to four out of 10 consumers use BNPL services. Almost one in
five consumers are using BNPL for essentials, such as groceries and car repairs. Fifty-five
percent of BNPL customers said the payment option had encouraged them to make
purchases they would not otherwise have made. And 14% of consumers have been
charged late fees. We estimate this could be costing consumers over $10 million per

Our most recent Consumer NZ Sentiment Tracker data (from October 2021) showed that
of those with personal debt, 21% have BNPL debt. Our data also showed 55% pay for
their debt on debit card and 39% on credit card

Question 8: Do you live in a household with multiple BNPL accounts? Yes / No /
Prefer not to answer
No comment

Question 9: As a BNPL consumer (or consumer representative) (select one
A) Do you value having a hard credit check being conducted OR
B) Would you prefer a soft credit check that doesn’t leave a ‘footprint’ on
your credit score?
Please explain the reasons for your answer
Although some consumers may prefer a soft credit check, in our view, these types of
checks are not adequate. Where BNPL providers only do soft credit checks, they are
unable to see whether the consumer currently has debt obligations to other BNPL
providers or has previously defaulted on debt obligations. This information is important
in assessing whether a consumer can take on future debt obligations

Question 10: What are the advantages and disadvantages (including costs)
from credit checks being used to determine approval for BNPL?
Hard credit checks do have some advantages over soft credit checks. For example, they
provide a more detailed picture of a consumer’s credit status. Also, the extra step and
the fact that a credit check is required may help consumers understand they are
applying for a type of credit, and not just buying now and paying later with no

However, we do not support credit checks being used as the sole determinant for
approval of BNPL because they do not assess affordability. Also they leave a ‘credit
footprint’ on a credit score, which potential lenders can see. Future lenders may see this
as a sign that a consumer is struggling with debt obligations and be less inclined to
provide credit in future

Question 11: What other/additional steps could BNPL providers take to assess
affordability for consumers? What are the disadvantages (including costs) of
these steps? What are the benefits of these steps?
We consider BNPL providers should be required to take similar steps to other credit
providers to assess affordability

The disadvantages of requiring affordability assessments are that the process could take
longer, consumers would be required to provide more information and there would be
some additional costs to providers

Providers’ revenue is also likely to be impacted (given the amount they currently earn
from late fees), but we do not consider this to be a disadvantage

We agree open banking has the potential to reduce operating costs by allowing providers
to make more accurate lending decisions

Benefits of assessing affordability include ensuring consumers don’t take on unaffordable
debt and that BNPL debt is treated the same as other debt. It would also remove the
onus from individual consumers to assess affordability (which young, vulnerable or
consumers with low financial literacy may not be equipped to do) and help ensure a
consistent approach amongst BNPL providers. Affordability assessments also gives the
consumer more time to consider whether they need to make the purchase and whether
there may be an alternative to fund the purchase

Question 12: How might affordability assessments be conducted when BNPL
credit limits are increased?
A consumer’s financial situation can change overnight so we consider that BNPL credit
providers should conduct further affordability assessments before credit limits are raised

Even if a consumer has never missed a payment, this doesn’t mean they are immune to
financial hardship, especially as credit limits increase

As noted in the Discussion Document, consumers may meet their repayments, but miss
other regular payments e.g., utilities or essential goods and services. This type of
financial hardship is not easily visible to BNPL providers, as the provider is not directly

If a consumer’s credit limit is increased when they are experiencing this kind of financial
hardship, it is possible the consumer may be incentivised to make more purchases
through BNPL, worsening the cycle

However, if an affordability assessment was conducted, it would highlight if a consumer
was experiencing financial hardship, and if they were, the credit limits would not be

Steps could also be taken to help the consumer experiencing hardship

Question 13: What are the costs and benefits of conducting affordability
assessments when BNPL credit limits are increased?
We think the costs and benefits of conducting affordability assessments when BNPL
credit limits are increased are similar to those set out under question 11 above

Question 14: Are there any other ways to ensure BNPL credit limits are
increased responsibly?
We do not think limits should be raised automatically. Rather, credit limits should only
be raised on request by the consumer, and after an affordability assessment has been
done to determine whether an increase is appropriate

Consumers overseas have reported the continual increase in BNPL spending limits (as a
reward for making repayments on time) can be like a debt trap encouraging the
consumer to continue to spend up to the limit offered until they can no longer manage
the debt

In Australia, the Government has banned unsolicited credit increases to help prevent
problematic credit card debt. We would like to see similar rules in New Zealand in
relation to BNPL and other forms of credit

Question 15: Are there any other issues with consumers having multiple BNPL
accounts that we have not identified?
No comment

Question 16: How effective and practical would it be to share information with
other BNPL providers of consumer accounts which have been frozen?
Not effective / Somewhat effective / Very effective
Not practical /Somewhat practical / Very practical
Please provide details

We consider it would be somewhat effective if BNPL providers were required to share
information with other BNPL providers of accounts that had been frozen. Consumers with
frozen accounts are likely to be at risk of experiencing financial hardship. Sharing with
other providers when a consumer has missed a payment and their account has been
frozen could lead to other providers preventing the same consumer from using their
service. This would limit the ability of the consumer to incur more debt than they can
afford to repay

Any personal information would obviously need to be shared in a manner consistent with
the Privacy Act 2020. Also, we do not endorse data brokerage practices where
consumers deemed at higher risk of credit default are sold as leads by higher tier lenders
to lower tier lenders

Question 17: How could information about consumers having multiple BNPL
accounts be appropriately shared across the BNPL sector?
There could be a central registry that contained this information. We consider close
consultation with the Office of the Privacy Commissioner in the set up and potential
administration of a registry would be essential to ensure commercial interests do not
override the interests of consumers

Question 18: What are the costs (including disadvantages) of the approaches
you describe in Question 17? What are the benefits of the approaches you
describe in Question 17?
Given there are many transactions going through BNPL services, it could be time
consuming to set up such a registry

The benefits would be that consumers would be less likely to suffer financial hardship
from having multiple BNPL accounts

Question 19: What tools and processes could be introduced for the timing of
BNPL instalments to be better aligned to income and other expenses?
Consumers should have the ability to choose the dates they want payments to come out
(within a set timeframe) and to amend these dates (within limits) at a later stage if
necessary. Having the ability to amend payment dates could have a substantial impact
on a consumer’s ability to make repayments

Question 20: What are the costs (including disadvantages) of such tools and
There may be some set-up costs in configuring apps to allow consumers this
functionality but once completed, we do not consider there would be any major costs

Alternatively, BNPL providers could provide a contact number and email address for
consumers to use if they need to amend payment dates

Question 21: When making BNPL transactions, how could consumers be made
more aware of the total costs of their purchases? What are the costs of these
tools? What are the benefits of these tools?
We think any provider should be required to emphasise the total cost, and late payment
fees, rather than just the instalment costs. We also think providers should have to make
it clear that they are providing a form of credit, and the consequences for not making
payments on time. This would help consumers focus on the overall cost, rather than the
initial instalment. It would also help them understand the nature of the arrangement
they are entering

The use of personal financial management tools may also be useful for some consumers,
but we do not consider it would be appropriate to make them mandatory. We support
better disclosure and affordability assessments at the outset, rather than giving the
consumers tools to manage debt they shouldn’t have taken on in the first place

Question 22: As a consumer (or consumer representative), what has been your
experience of receiving help from BNPL provider/s if you missed an instalment
and/or faced financial hardship?
We are concerned there are a variety of hardship policies and procedures in place with
BNPL providers. In our view, these should be consistent between providers to ensure
consumers are protected in the case of financial hardship. Bringing BNPL under the
CCCFA would help ensure a consistent approach

Question 23: How could BNPL providers be more responsive to consumers
relying on BNPL to pay for essential goods and services? What are the costs of
these tools? What are the benefits of these tools?
If a consumer is using BNPL to purchase essential goods and services we think it is more
likely the consumer may be suffering financial hardship. If a consumer regularly uses
BNPL services in this way, BNPL providers could be required to recommend the
consumer consults a financial mentor and/or social welfare for assistance

Question 24: Do you have any comments on the diagrams above summarising
the triggers of financial hardship, how they occur, and the features which could
mitigate financial hardship?
No comment

Question 25: Do you agree with our view that the lack of affordability
assessments is likely to be a key reason why some consumers using BNPL face
financial hardship?
The lack of affordability assessments is a major contributor to why consumers using
BNPL services face financial hardship

We also consider the advertising of these products is likely to be contributing to financial
hardship. Advertising is often targeted at young people via social media, normalises
debt, makes the process seem very easy and can encourage irresponsible spending

Some providers encourage using BNPL to buy essential products such as food. Some also
encourage spending by offering prizes. Advertisements also downplay the risks involved
with using a BNPL service

Some examples of recent advertising are set out below:
Ads also frequently use influencers and celebrities to endorse their products. When
people see their favourite celebrities or influencers use a BNPL service, this is likely to
motivate them to consider doing the same

In Australia in 2020, an advert starring Rebel Wilson was pulled from Australian
television due to complaints the advert minimised the risk and harm of BNPL schemes

In the UK, the Advertising Standards Authority (ASA) banned four Instagram posts from
‘influencers’, who were paid by Klarna to advertise their payment service in December
2020. All the ads were linked to lifting or boosting mood during the UK lockdown. The
ASA concluded the ads irresponsibly encouraged inappropriate use of credit, particularly
in the context of a lockdown and the impact it could have on people’s financial situations
and mental health. The ads were found to be inappropriate because they were effectively
linking a credit system with improved mood

We recommend further consideration be given to the way in which BNPL services are

Question 26: Do you have views on the overall objective of the BNPL sector?
We support the overall objective set out in the Discussion Document

Question 27: Do you have any views on how the interests of consumers could
be protected?
In our view, the best way to ensure consumers’ interests are protected is to regulate the
BNPL sector under the CCCFA

Question 28: Do you have any views on the criteria used to assess how to
achieve an effective BNPL sector?
No comment

Question 29: Do you have any comments on the discussion of Option One:
status quo? Please provide evidence if available

In our view, maintaining the status quo is not an option as it will continue to result in
consumer harm. Consumers will continue to incur late payment fees, get into debt, and
risk having their credit ratings negatively affected. Consumers will also be encouraged to
spend, rather than save. We do not consider this will benefit New Zealand in the long

Question 30: What are the costs and benefits of Option One for any relevant
parties e.g. consumers, BNPL providers, businesses accepting BNPL as a
payment option, competitors to BNPL? Please provide evidence if available

In our view, the benefits of Option One apply only to consumers who have the
knowledge and capacity to manage BNPL products well. This leaves those consumers
who do not have those skills vulnerable to predatory practices by providers

BNPL providers benefit from Option One as they can continue to earn substantial
revenue in a regulatory environment which turns a blind eye to irresponsible lending

Question 31: Do you have any comments on the discussion of Option Two:
Government establishes appropriate incentives for BNPL providers to have an
industry code which addresses the triggers of financial hardship? Please
provide evidence if available

We do not support Option Two. In our view, the level of harm justifies greater
intervention than a voluntary code

A voluntary industry code has been implemented in Australia, but the requirements
under the code fall well short of responsible lending requirements. Under the code,
Australians can still get up to $2000 of credit from BNPL providers without having their
ability to repay the money genuinely assessed. In addition, there is insufficient
monitoring and enforcement, and no real consequences for breaching the code. As such,
we do not consider the code has been effective at preventing hardship caused by BNPL

The recent Royal Commission into misconduct in banking in Australia was critical of
industry self-regulation codes, noting their limitations and difficulties. The final Royal
Commission report stated standards set in a voluntary code may not be adequate, not all
participants will be bound by the code, monitoring and enforcement of compliance may
be inadequate and the limited consequences for breach may not be enough to make
participants prevent and correct failures. They also noted there was some doubt about
the extent to which obligations in a code could be relied on and enforced by individuals

We do not consider an industry code to be an adequate substitute for regulation. We also
do not see any reason why BNPL products should be treated differently to any other
form of credit

Question 32: What are the costs and benefits of Option Two to any relevant
parties e.g. consumers, BNPL providers, businesses accepting BNPL as a
payment option, competitors to BNPL providers? Please provide evidence if

For the reasons stated above, we do not consider this option would provide a satisfactory
level of protection for many consumers as it will not result in substantial changes in the

Question 33: How could Option Three be designed (including the timing of
requirements) to ensure the BNPL delivers long-term benefits to consumers?
Please provide evidence if available

In our view, the regulations need to be designed to ensure they allow BNPL service
providers to continue to offer the product but incorporating consumer protections that
are offered to consumers of other credit products

Question 34: What are the costs and benefits of Option Three and how it is
designed to any relevant parties e.g. consumers, BNPL providers, businesses
accepting BNPL as a payment option, competitors to BNPL providers? Please
provide evidence if available

Although this is likely to be the most expensive option, it is also the option that will best
protect consumers and meet the objectives stated in the Discussion Document

Regulation will force providers to provide adequate disclosure, lend responsibly, offer
cooling off periods, enable hardship applications, ensure fees are reasonable, and
provide dispute resolution for consumers. It will also ensure fewer consumers get into
financial hardship

Question 35: Do you have any suggestions on how we could measure and track
progress against whether BNPL is delivering long-term benefits to consumers?
Please provide evidence if available

We consider there needs to be a review within 12 months to 2 years of any option being
adopted to ensure it is providing the benefits anticipated and not resulting in any
unexpected issues. We also recommend the Government engages with financial mentors,
consumer representatives and consumers to measure and track progress against
whether BNPL is delivering long-term benefits to consumers

Buy Now Pay Later Project Team Consumer and Competition Policy Team Building, Resources and Markets Ministry of Business, Innovation and Employment PO Box 1473 Wellington 6140 …

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