Large BNPL transactions to face credit checks in NZ as Australia mulls regulation

NZ is introducing credit checks for larger buy now, pay later transactions in a move to be keenly watched by Australian policymakers.

An Afterpay spokeswoman says the company advocates for regulation. Picture: John Gass

New Zealand will introduce credit checks for larger buy now, pay later transactions in order to rein in potential “debt traps” for consumers, in a set of developments that will pique the interest of Australian policymakers.

NZ Commerce and Consumer Affairs Minister David Clark on Wednesday said the government agreed affordability checks should become common practice for BNPL loans above $NZ600, and will consult on how those checks should occur.

Loans below that threshold would not be bound by the proposed reforms but would be subjected to comprehensive credit reporting.

“While for many, BNPL can be a useful way to spread the cost of large household purchases, we are trying to stop vulnerable people getting into a spiral of debt if lenders allow them to take on more than they can afford,” Mr Clark said in a statement.

NZ Commerce and Consumer Affairs Minister David Clark. Picture: Getty Images

After a consultation period, NZ’s government expects final regulations in 2023.

Under proposed BNPL reforms, providers would be required to have hardship processes and belong to a dispute resolution scheme.

BNPL directors and senior managers would need to be certified “fit and proper” by NZ’s Commerce Commission.

The federal government here is also considering BNPL regulation. Policymakers are digesting an issues paper compiled by Treasury assessing models for potential Australian regulation of the BNPL industry, which largely relies on National Credit Code exemptions.

Financial Services Minister Stephen Jones has previously flagged he wants BNPL services in Australia treated as a type of loan product and suggested new regulations could be firmed up in 2023’s first half.

Financial Services Minister Stephen Jones.

Mr Clark cited figures showing BNPL spending in NZ grew to $NZ1.7 billion in 2021 – up from $NZ755 million in 2020.

An Afterpay spokeswoman on Wednesday said: “Afterpay has always advocated for regulation that drives strong consumer outcomes, is fit-for-purpose, and proportionate.

“We welcome the (NZ) government’s recognition that BNPL is distinctly different from traditional credit.

“Achieving the right regulatory balance will mean that consumers are not driven back towards credit cards and payday loans – products that profit from people revolving in debt.”

Zip’s ANZ operating chief, Chris Patrick, said the company backed “fit for purpose” regulation.

“There should be appropriate guardrails to ensure consumers are protected while not stifling innovation or competition,” Mr Patrick said.

“We conduct credit checks on all customers … Zip also subscribes to the indebtedness indicator, provided by Centrix, that ensures we do not lend to customers that are behind on payments to other BNPL providers.”