At Consumer NZ, we examined whether current regulations of buy now, pay later (BNPL) services provide adequate consumer protection. This work was being carried out in partnership with FinCap, with research conducted by Te Herenga Waka—Victoria University of Wellington, and is supported by funding from the Michael and Suzanne Borrin Foundation.
About buy now, pay later
BNPL is a popular form of credit. Many people who use it manage it well. But for some consumers, particularly those experiencing financial hardship, it carries significant risk.
In phase one of our research project, we examined whether consumers are still facing substantial harm from BNPL – and found that they were. BNPL has been found to encourage higher spending, increase impulsive purchasing, be incorrectly perceived as less risky than traditional forms of credit (like a credit card) and be framed to minimise the nature of the debt.
Have the 2024 reforms helped protect consumers?
In phase two of the project, we looked at whether the BNPL regulatory reforms, which took effect in September 2024, have improved consumer protections and reduced financial harm.
Our phase two report outlines consumers’ experience of BNPL before and after the reforms were introduced.
The report concludes that the reforms have not reduced consumer harm, and that the number of users experiencing hardship is continuing to increase.
The report makes three recommendations to improve BNPL.
Recommendations
1. Require affordability assessments
The report recommends BNPL providers be required to conduct affordability assessments – to make sure consumers can afford to repay the debt, before they sign them up for it.
Under current laws, BNPL providers can avoid doing this if they carry out credit checks and meet credit reporting requirements.
All the major BNPL providers are doing this, meaning they’re under no obligation to determine whether repayments are affordable for consumers. Instead, they need only obtain and report on credit information.
Other jurisdictions, such as Australia and the United Kingdom, require, or are moving towards requiring, more comprehensive affordability checks.
2. Remove unreasonable fees exemption
The report also recommends the unreasonable fees provisions of the Credit Contracts and Consumer Finances Act (CCCFA) should apply to BNPL contracts.
In late 2024, BNPL providers became exempt from the CCCFA’s rules about unreasonable fees and the requirement that default fees reflect the actual costs of the provider.
This means:
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late fees do not need to reflect the provider’s actual costs
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multiple late fees can apply simultaneously across different purchases
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fee protections are weaker than those applying to other consumer credit products.
We think the 2024 exemption significantly weakens consumer protection and undermines consistency within the CCCFA framework.
3. Close the quasi buy now, pay later loophole
Finally, the report recommends that quasi-BNPL arrangements (such as 2degrees’ interest-free device plans and OPSM’s Visionplan via Debitsuccess) should be subject to the CCCFA.
Under current rules, some payment instalment products fall outside the legal BNPL definition either because the merchant is also the lender or the product’s structure differs from the technical BNPL definition.
These products may involve the user signing up for payment instalments, being subject to late fees, undergoing credit checks and being subject to debt collection, yet they are not regulated under the CCCFA.
We think this needs to be fixed, so consumers don’t face inconsistent protections depending on how they purchase a product or service.