‘Buy now, pay later’ credit checks needed, says charity

People sinking under unmanageable debt are able to get multiple ‘‘buy now, pay later’’ loans, Minister of Consumer Affairs David Clark has been told.

Christians Against Poverty is calling on Clark to bring buy now, pay later loans under responsible lending laws, which would require the providers to conduct credit and affordability checks to ensure borrowers really can afford the repayments.

New Zealand now has a range of providers offering shoppers the option of paying off their purchases over a number of weeks, interest free.

‘‘These clients were already struggling with unmanageable debt and the ability to pay for basic living essentials yet were granted further credit, almost instantly, by buy now, pay later providers,’’ Christians Against Poverty chief executive Sam Garaway said.

‘‘Unaffordable buy now, pay later agreements can push people into financial hardship.’’

The call for buy now, pay later loans to be regulated like other consumer loans is backed by personal and vehicle lenders from the Financial Services Federation. That would see the Government follow the United Kingdom Government, which brought buy now, pay later under responsible lending laws there following a damning report by the UK’S Financial Conduct Authority.

Federation executive director Lyn Mcmorran said its member lenders had seen cases where they had made responsible loans, only for the borrower to then take on buy now, pay later debt and default on their earlier loans.

Clark said a discussion paper on regulating buy now, pay later would be issued later this year.

It was increasingly common for Christians Against Poverty to identify pay-later accounts when working with deeply indebted people, Garaway said. ‘‘In many instances, consumers can access buy now, pay later without credit checks, affordability assessments or lifetime-of-repayment considerations.’’

He gave the example of a client, ‘‘Sarah’’, who was able to get buy now, pay later loans from all but one lender, despite being already deeply indebted.

‘‘The provider who declined her application states on their website that they take into account previous repayment history with other lenders and accounts, as well as information consumers provide about their employment status, income and expenditure,’’ Garaway said.

‘‘Other buy now, pay later providers do not appear to apply this level of assessment.’’

He said people could access multiple buy now, pay later sources simultaneously, meaning it was possible for them ‘‘to rack up an amount of debt well beyond affordability’’.

Failure to make payments on such loans could result in fees of up to 40 per cent of the purchase price, Garaway said.

Buy now, pay later companies had created a voluntary code of practice, Laybuy founder Gary Rohloff said. That had been sent to the minister, said Rohloff, who met Clark last month to discuss the issues.

Rohloff said Laybuy had always done credit checks. ‘‘We have scored people since day one,’’ he said, calling that a moral decision. ‘‘Appropriate regulation no-one has a problem with, providing it’s not a sledgehammer to knock in a tack.’’

Garaway said new, tighter lending laws would take effect in October, and he worried this would lead to a rush to sell more buy now, pay later loans.

‘‘With potential for demand to explode, unregulated buy now, pay later products are a ticking time bomb for vulnerable consumers,’’ he said.

Garaway told the minister that such loans disincentivised sensible financial behaviour such as saving and budgeting.

He said one buy now, pay later provider promoted itself on its website by saying businesses that used it had seen average order values jumping by 40 per cent.