It’s a great new way to get what you want upfront and pay later – but there are traps, and consumer advocates say the schemes need to be regulated
For a lot of people Buy Now, Pay Later is a godsend – a way to pay just a quarter of the price of something, take it home, and pay the rest off in instalments.
But there are traps for those who aren’t good at tracking their finances – penalties that can considerably increase the price of goods, and leave a bad credit record.
In New Zealand it’s been estimated that late fees could add up to about $10 million a year, as people enter overlapping agreements and find they just can’t keep up with payments.
Today onThe Detail Emile Donovan talks to John Duffy, the chief executive of Consumer NZ, about the problems with such schemes, and his concerns about them falling outside the regulations that govern other credit operations.
Buy Now Pay Later operations don’t charge interest, and you don’t need to jump through the hoops of bank or finance company credit checks to qualify. Often you can sign up at the counter.
The companies involved include Lay Buy, Afterpay, Zip, and Humm. They make their money from fees they charge the retailer for their service; a service which studies have shown encourages people to buy items they wouldn’t have normally. The merchant gets the price for the product (minus the fee), and from then on the relationship is between the customer and the Buy Now Pay Later (BNPL) company.
“For lots of people it’s really good,” says Duffy.
“From our perspective at Consumer NZ we are not anti-Buy Now Pay Later at all. We see that there’s a real opportunity here to break into the credit market and dislodge the kind of dominant position that credit cards have with their particularly high interest rates, and actually provide a really good competitive option for people.
“The issue we have is there’s a whole lot of rules that have grown up with the credit card industry, and particularly recently with responsible lending, that don’t apply here.”
BNPL has fallen into a hole in the legal framework. Because you don’t get charged interest up-front, the schemes don’t really meet the definition of credit, like a credit card would.
Duffy says it’s concerning that some people may have borrowed irresponsibly, and not realised that once they get into a bit of a spiral that the late payment fees start mounting up, especially if they have signed up to multiple deals at once.
“There is no requirement on BNLP companies to assess an individual’s ability to repay the loan, because it’s not deemed to be credit.
“Because they’re so new, the law hasn’t had a chance to catch up yet.”
He also says schemes that enable you to sign up instantly in a store put undue pressure on retail staff, who are forced into a position of acting like a lending officer in a bank … and if you’re in a position where you really need an item, there’s no incentive not to lie about your ability to pay.
“When you look at how some of these products are marketed, it’s all about the ease of purchase, and it’s all about temptation. We have deemed it appropriate in the credit card space to put rules in place to make sure those people who are the most vulnerable aren’t preyed upon by these products,” says Duffy.
“We’re simply arguing that those restrictions should be in place for Buy Now Pay Later.”