The government is proposing the checks should apply for loans above USD 350, meaning borrowers will receive the same kind of protections as those who seek credit cards and personal loans, as per government officials. Smaller loans will not have to go through the same process, but credit reporting will need to occur.
Trying to avoid debt spiralling
The Commerce and Consumer Affairs Minister of New Zealand explained that while for many, BNPL can be a useful way to spread the cost of large household purchases, they are trying to stop vulnerable people getting into a spiral of debt if lenders allow them to take on more than they can afford.
BNPL products typically allow consumers to pay for purchases in four instalments with the promise of little to no fees, no interest, and quick credit approvals, but with late fees charged if payments are missed.
The amount of money spent with BNPL in New Zealand grew to USD 1.007 billion in 2021 from USD 477 million in 2020, according to government figures. That’s why authorities saw the need to make sure these products and the companies that offer them are serving consumers properly, and that they can be held accountable.
The government will develop regulations that will treat BNPL as a consumer credit contract under the Credit Contracts and Consumer Finance Act. Officials will consult on the loan threshold at which affordability checks will apply and will also seek feedback on how the checks should be carried out.
All providers will also be required to 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.
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