Call to regulate paylater ‘ticking bomb’

WELLINGTON: Pressure is mounting for buy now, pay later schemes to be regulated, with fears they are a ‘‘ticking time bomb’’ for vulnerable people.

Services such as Afterpay, Laybuy and ZipPay are interestfree with repayments staggered over several weeks and late fees if a payment is missed.

But according to research from the Ministry of Business, Innovation and Employment (MBIE), 90% of people using them have other debts and 20% have previously missed at least one payment.

Because the schemes do not charge interest like a credit card, they do not fall under the Credit Contracts and Consumer Finance Act.

Consumer NZ wants this regulated. Consumer head of communications and campaigns Gemma Rausmussen said the lack of credit assessment of customers was concerning.

‘‘Noone is actually assessing to see whether customers can service the debt, so that means that vulnerable consumers, they may not be able to repay their debt, they could end up with a poor credit rating and things can escalate very quickly to a debt collector.’’

Ms Rausmussen said people often did not regard the schemes as banking products.

‘‘When you walk into a store and you can download an app and have buy now, pay later within a matter of minutes and you’re also then provided a lot of marketing encouraging you to spend, the lines can be blurred and sometimes it can be harder to understand that you are actually very much taking on this debt.’’

The variety of products was expanding, and alcohol, parking fines and even holidays were on the list.

According to Consumer NZ’s latest research, 50% of the buy now, pay later purchases by people who earned less than $50,000 a year were for essential items.

But Ms Rausmussen said it was how people managed those purchases that caused issues.

‘‘Another thing that our research did find is that about 28% of buy now, pay later users are paying for their payments on a credit card. So it can mean that you have a double cycle of debt — you’ve got the interest from the credit card, then you’re also running the risk of late payments.’’

There was a growing community of vulnerable people turning to these schemes who might not have found themselves in this position a few years ago, she said.

With some limits rising as people bought more, it was easier to spend more, the research said.

Consumer NZ said retailers could feel disadvantaged if they did not offer the option. Shoppers could easily find that outgoing payments were eating into their income.

A financial mentor said he experienced that recently with one of his clients.

‘‘She’s got 16 current after pays, she’s a beneficiary, she needs to find $630 a fortnight . . . She can’t afford it without sacrificing most of her general living expenses like rent and food.’’

Because she could not make those payments, $160 a fortnight in late fees was adding to her debt.

In a statement, Consumer Affairs Minister David Clark said he was concerned about the potential of buy now, pay later schemes to cause financial hardship.

Last November, MBIE officials consulted consumers, businesses and other interested parties to hear their experiences.

Dr Clark expected to make further announcements soon. — RNZ