New Zealand’s Commerce and Consumer Affairs Minister, Dr. Duncan Webb, announced that more regulations to boost protection for buy now, pay later (BNPL) consumers will be forthcoming.
According to Duncan BNPL offers consumers a lot of convenience and the ability to break down their payment into smaller installments without paying interest. But, the current rules in place offer no protection for consumers struggling to make repayments—a growing issue that many are currently facing.
Through the new regulations, BNPL lenders will need to “complete comprehensive credit reporting when customers sign up or increase their credit limit,” Duncan noted in a prepared statement. Once the regulations have been implemented, lenders will have some time to ensure they’re compliant and have the necessary processes in place. “Requiring ‘comprehensive credit reporting’ upon origination places BNPL right in line with credit cards, but we will have to wait and see what the details of these regulations will be when announced,” said Ben Danner, Senior Analyst for Credit and Commercial at Javelin Strategy & Research.
The Road to Increased BNPL Regulation
The BNPL sector has been largely left to its own governance. Its meteoric rise during the pandemic was fueled by consumers’ easy access to credit, resulting in overspending and consequently, mounting debt. Users have reported missing multiple payments, which in turn has negatively impacted their credit scores.
Consumer advocates have been rallying for increased regulation, claiming that fees and interest rates can be complex for consumers to understand and navigate—and what’s more, BNPL can create the perfect storm for financial recklessness.
BNPL providers have taken steps to protect consumers through various initiatives, including a credit opt-out product that Klarna unveiled earlier this year.
The industry could take a financial hit as increased regulation can potentially dissuade investors from supporting BNPL platforms. In fact, the British government announced that it was holding off introducing any new regulations as not to limit the services in the UK and have some of the biggest names in the industry leave the UK market. But not everyone is pulling back. The Australian government has taken regulatory actions of its own against the BNPL sector, treating BNPL services as the equivalent to credit products. Vulnerable groups, such as women, lower-income individuals, and First Nations communities are most at risk within the BNPL industry, the government states.
Meanwhile in the U.S., the Consumer Financial Protection Bureau (CFPB) has instructed BNPL providers to provide complete data on all transactions, underwriting procedures, and credit checks. As the BNPL regulatory landscape continues to develop in the U.S., it remains to be seen how this will affect the overall sector.
