Buy Now Pay Later

What is Buy Now Pay Later?

Buy Now Pay Later (BNPL) is a relatively new credit alternative in New Zealand. By using BNPL, consumers can access goods or services now but pay for them later in a series of interest-free instalments.

BNPL providers were not automatically required to comply with the rules under the Credit Contracts and Consumer Finance Act (CCCFA). This is because they do not charge interest, credit fees or take a security interest over goods. BNPL products are subject to the Fair Trading Act 1986, and some BNPL lenders offer other products which are CCCFA regulated, such as credit cards.

While there are benefits from BNPL to consumers, businesses and the wider economy as an alternative to other forms of credit, the Government has acted on concerns that for some people, the use of BNPL will be unaffordable and unsuitable, and could result in financial hardship.

Concerns of financial hardship

Financial mentoring organisations, who work to help New Zealanders in financial difficulty, have made MBIE aware that BNPL could be creating financial hardship for some consumers.

Financial hardship can take a range of forms. Consumers may be unable to make payments on BNPL, with any missed payments adding to the debt they face through late payment fees. It could also mean that consumers who do meet their BNPL payment obligations are not able to afford other expenses (such as a power bill or groceries) because the payment instalment is collected automatically via a debit card or credit card.

Consultation

In October 2022, the Government agreed to apply the Credit Contracts and Consumer Finance Act 2003 (CCCFA) to BNPL. MBIE opened consultation on 19 December 2022 to seek feedback on the proposed regulations, including a proposed threshold of $600 and what will apply above the threshold. Stakeholders were invited to provide feedback from 19 December 2022 to 10 March 2023.

Read more about the consultation and submissions

MBIE previously consulted on BNPL in late 2021. This consultation focussed on understanding how BNPL could trigger financial hardship for consumers, to inform how to achieve an effective BNPL sector - one where the risks of financial hardship are balanced against the benefits of BNPL. 

Read more about the 2021 consultation and submissions

New regulations

The Government has made regulations applying the CCCFA to BNPL, so that consumers using this form of credit will receive many of the same protections as borrowers in other consumer credit contracts – like credit cards and personal loans. However, obligations will be applied proportionately, having regard to the nature of BNPL and the lack of interest and credit fees, to allow the benefits of BNPL to be retained.

The Government has reached detailed decisions about which obligations should apply to BNPL loans, which have been informed by public consultation.

Key changes

Key protections from the CCCFA are outlined below:

• Most general lender responsibilities will apply without modification, including assisting borrowers to make informed decisions, and treating them reasonably and ethically.
• Borrowers will be protected from unreasonable default fees.
• Borrowers facing unforeseen hardship can apply to the lender to have their repayment contract varied.
• BNPL lenders will need to be part of an external dispute resolution scheme and provide details of the scheme if borrowers make a complaint or hardship application. Consumers will be able to receive compensation and statutory damages from lenders who breach relevant CCCFA rules.
• BNPL lenders will be required to provide information to borrowers who miss payments about financial mentoring services.
• BNPL lenders will have to disclose key information about credit contracts and any variations.
• Directors and senior management of BNPL lenders will be required to be certified by the Commerce Commission to be fit and proper persons for their respective positions.
• Directors and senior management will be subject to due diligence duties.

There will also be some other obligations that will apply differently to BNPL lenders to ensure they are workable:

• BNPL loans will be exempt from the requirement to carry out affordability assessments if they comply with a range of credit reporting and other requirements intended to reduce the risk of consumers getting into problem debt.
• Inquiries into the suitability of the loan for the consumer will not be required because they are unlikely to be useful given the nature and structure of BNPL loans.
• The requirement to disclose the borrower’s right to cancel the contract will be modified to reflect the cancellation policies of BNPL loans.

These changes are reflected in the Credit Contracts and Consumer Finance (Buy Now, Pay Later) Amendment Regulations 2023 and will come into force on 2 September 2024. The delayed commencement of these regulations is to ensure BNPL lenders are able to comply fully with the CCCFA.

Credit Contracts and Consumer Finance (Buy Now, Pay Later) Amendment Regulations 2023(external link) – New Zealand Legislation

Amendment Regulations 2024

In August, Cabinet agreed to exempt BNPL providers from unreasonable fee provisions in the CCCFA. This was given effect by the Credit Contracts and Consumer Finance (Buy Now, Pay Later Exemptions) Amendment Regulations 2024 which commenced on 1 November 2024. This decision was made in response to concerns about the unintended impacts the CCCFA fee provisions would have on the ability of BNPL providers to calculate and charge default fees, for the overall viability of BNPL products.

The Amendment Regulations 2024 are intended to retain the benefits of BNPL and ensure consumers continue to have access to this type of credit. Other requirements in the Credit Contracts and Consumer Finance (Buy Now, Pay Later) Amendment Regulations 2023 and the CCCFA will still apply to BNPL, providing protections for consumers and transparency of BNPL providers’ default fee policies.

Read the Cabinet papers, Cabinet minutes and BNPL Regulatory Impact Statement: