On 2 November 2022, Commerce and Consumer Affairs Minister Dr David Clark announced new regulations will be introduced for Buy-Now, Pay-Later (BNPL) so providers will have to comply with certain consumer protections under the Credit Contracts and Consumer Finance Act (CCCFA). The announcement follows similar moves to regulate BNPL in the UK and Australia.

Why protections are being introduced

Unlike typical credit facilities, the key characteristic of a BNPL loan is the absence of upfront fees and payment of interest. It is only when a consumer misses a payment that a late or default fee may be applied. The structuring of BNPL loans in this way means to date they have not fallen within the scope of the CCCFA and its definition of a ‘consumer credit contract’, so the responsible lending obligations nor the CCCFA consumer protections apply.

Key features

Under the new regulations to be developed, the Government has agreed affordability checks should apply to BNPL loans above a certain threshold (proposed at NZ$600), so consumers will receive the same type of protections to borrowers who enter into consumer credit contracts. Smaller loans under the threshold limit will not have to go through the same process, but comprehensive credit reporting will be needed. BNPL providers will be required to have hardship processes in place and belong to a dispute resolution scheme with the flexibility to vary repayment of contracts. While directors and senior managers of BNPL providers will need to be certified fit and proper by the Commerce Commission and will be subject to due diligence duties.

Other proposed changes include:

• General lender responsibilities will apply, including ensuring the borrower is able to make an informed decision.
• Borrowers will be protected from unreasonable default fees.
• BNPL providers will have to disclose key information and any variations.
• BNPL providers must disclose repayment schedules and late fees when every purchase is made, and not just when the contract is entered into.

Impact on the BNPL industry

The announcement to regulate BNPL loans has been in the pipeline for a while, and so should be of no surprise to BNPL providers. Although new regulations will introduce operational constraints, it will also provide some certainty on the future regulatory BNPL landscape in New Zealand and bring BNPL providers into the mainstream.

What’s next

The Ministry of Business, Innovation and Employment (MBIE) aims to commence consultation on the detail of the reforms, including a proposed threshold of NZ$600 and what will apply above the threshold, later this year. It is intended that final regulations will be ready for release in 2023.

A link to Minister Clark’s media release can be found here.

Start a conversation

If you would like a briefing on any aspect of, or have any questions in relation to this Factsheet, please contact Liz Lim on +64 9 909 6341, Catriona Grover on +64 4 498 0816, David Ireland on +64 4 498 0840 or Pauline Ho on +64 9 909 6345, or email the team at bankingandfinancialmarkets.nz@dentons.com.

This factsheet was co-authored by Lorna Sullivan, a Law Graduate in our Banking and Financial Services team.