On 8 August 2023, the Commerce and Consumer Affairs Minister announced increased protections for consumers using Buy Now Pay Later (BNPL) credit contracts, which aim to strike “a balance between reducing risk for vulnerable consumers and ensuring fit for purpose rules for the sector”. This follows the Cabinet’s agreement in October 2022 to apply the Credit Contracts and Consumer Finance Act 2003 (CCCFA) to BNPL, which means that consumers using BNPL will receive many of the same protections as borrowers in other consumer credit contracts (such as credit cards and personal loans).
For those who are unfamiliar, BNPL is a relatively new form of credit in New Zealand whereby consumers can access goods or services now but pay for them later in a series of interest-free instalments. Since BNPL providers do not charge interest, credit fees or take security interest over the goods, they are not currently required to comply with the CCCFA but are instead subject to the Fair Trading Act 1986. While there are certainly economic benefits of BNPL, the Government is also aware that the use of BNPL could result in financial hardship for some consumers. This awareness triggered an industry consultation by the Ministry of Business, Innovation and Employment (MBIE) in December 2022 to seek feedback on the proposed regulations to apply the CCCFA to BNPL, which led to detailed decisions by the Government about which obligations should apply to BNPL loans.
The regulations are expected to include key protections from the CCCFA, such as general lender responsibilities on assisting borrowers to make informed decisions, and treating them reasonably and ethically, and requiring BNPL lenders 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 also be able to receive compensation and statutory damages from lenders who breach relevant CCCFA rules. Further information is available on the MBIE’s website.
Wider review of the CCCFA
The Minister also announced a wider review of the CCCFA, and some additional exemptions for certain types of lending. The Minister commented that “[i]t’s important to keep the Act up to date to ensure it continues to strike the right balance between protecting vulnerable consumers and having a healthy and effective market for credit”. The Government is expected to announce the terms of reference for the exemptions in due course.
One of the exemptions will be for voluntary targeted rate scheme loans (such low-cost loans are usually for sustainable home improvements like insulation) administered by local and regional councils. These will be carved out from the CCCFA to avoid unnecessary compliance costs. Regulations giving effect to this exemption are expected to be made by the end of 2023.
Another exemption will be a permanent exemption from certain CCCFA obligations for people affected by emergency events. The Minister expressed that based on an assessment of the temporary exemptions in place after the Auckland floods and Cyclone Gabrielle, the Government sees a case for something more permanent, especially as these events are becoming more frequent.
How may this affect you?
If you feel that the latest CCCFA amendments may affect your business, feel free to reach out to the Banking and Finance professionals for advice on how to best prepare for these changes.
