Are credit checks for 'buy now, pay later' schemes enough?
Providers like Afterpay don't have to carry out affordability tests and were recently allowed to set fees at whatever level they like.
Mōrena, and welcome to The Bulletin for Tuesday, September 17.
In today’s edition: The PM denies cherry picking crime data, Auckland Airport seeks $1.4bn in capital drive, and a new poll brings bad news for Chris Hipkins as he jets off to the UK. But first, should we be doing more to protect users of delayed payment schemes?
David Seymour gets his way
I recently bought something on Afterpay for the first time in months. I’d been forced to delete the buy now pay later (BNPL) app when applying for a mortgage, but setting it back up was… almost too easy. The reason I mention this is because BNPL schemes have been back in the news recently. The providers, which offer near instant access to interest free instalment pay plans on almost anything, have recently had some consumer protections removed.
As the Herald’s Jenée Tibshraeny reported (paywalled), cabinet agreed to allow BNPL providers to set late or default fees at whatever levels they wish, exempting them from a requirement under the Credit Contracts and Consumer Finance Act (CCCFA). The decision came after David Seymour, as minister for regulation, overruled his colleague, commerce minister Andrew Bayly, who had wanted to ensure BNPL apps couldn’t charge users extortionate fees. Seymour believed that providers should set their fees at a level customers were prepared to pay. “That’s not something I think a politician can decide,” he said.
Backpedalling on affordability tests
It’s been a two year road to get here. In 2022, the Labour government announced they would bring BNPL providers into the CCCFA in a bid to stop “vulnerable” consumers falling into debt traps. You can find a more detailed explainer of the proposed changes here, but in short, the then-commerce minister, David Clark, wanted loans of $600 or more to come with the same types of protections offered to borrowers that use credit cards and personal loans.
But less than a year later, the government backpedalled on some of these protections. As Claire Dale explained in this piece for Newsroom, while BNPL providers will still now be required to complete credit reporting, they would remain exempt from affordability and suitability assessments. The government believed that was “too onerous for these short term, low value, interest-free loans”.
Why this matters
Critics have argued that as delayed payment schemes inherently involve taking on debt, they should be subject to more of the consumer protections that apply to other loans. Users of Afterpay, for example, are still able to borrow $2,000 – not as much as you might be able to access on a credit card, but still a sizeable amount if you run into financial difficulties. You won’t get loaded with interest, but you will be charged fees for missing payments (Afterpay has promised not to increase its fees despite the government’s latest deregulation). Afterpay, reported RNZ, says 95% of payments were made on time in the first quarter of this year.
In this piece for The Conversation, AUT academics Aaron Gilbert and Ayesha Scott explained that survey data found that delayed payments “appeared to be putting people under increased financial strain and compromised their overall financial wellbeing”. By contrast, the researchers claimed, credit cards and hire purchases didn’t “significantly increase over-indebtedness” due to the protective regulations in place.
There has also been a shift in the types of purchases being made with Afterpay. What was initially a service used primarily for discretionary spending, like clothing, is now being more widely used on everyday items. In 2022, The Spinoff’s Reweti Kohere reported on concerns about Afterpay being a payment option for alcohol, with advocates worried about the ability to use short term loans to pay for non-essential products. While one bottle store U-turned after pressure, others are still accepting Afterpay as payment.
Where to from here
New Zealand is ahead of the curve when it comes to regulating BNPL schemes. That means other countries are currently deciding how far to go with their own crackdowns. Credit checking became mandatory earlier this month, but Dale argued in her piece for Newsroom that it wouldn’t be enough. “Every dollar that is lent to a consumer without an affordability assessment is putting that consumer at risk of unmanageable debt and may cause harm to the financially vulnerable,” wrote Dale. In comments to The Post, Jake Lilley from budgeting company Fincap agreed, and argued that affordability testing should be a requirement. In Australia, parliament is discussing a similar credit reporting requirement, while the UK’s new Labour government wants to see affordability tests as had been proposed here in 2022.
The flipside of this is that there is clearly a market for BNPL schemes, and the market has shrunk in recent years. Afterpay, which claims to have 24 million users worldwide, is now one of just three providers in New Zealand, with Humm and Genoapay closing and Laybuy being bought by Swedish giant Klarna. Making it harder to use these schemes could see the competitive market shrink even further.
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PM denies cherry picking crime data
Just a day after touting a reduction in crime in Auckland CBD, the government has revealed new national data showing an overall rise. As Stuff’s Tova O’Brien reports, the data – showing almost 30,000 more people have experienced violent crime in the last two years – means the government is at risk of failing to meet its own self-imposed target for reducing crime. The new stats come from the New Zealand Crime and Victims survey which National has chosen as its measure for its crime reduction target.
Until yesterday, the most recent data showed no spike in violent crime, despite National claiming in opposition that it had risen by 33% under Labour. That figure came from police, but Luxon denied cherry picking data to fit his narrative. “I think that’s a bit cynical, we are here to make sure that we deliver better outcomes for Kiwis.”
Meanwhile, O’Brien’s colleague Glenn McConnell has looked at a different part of the government’s latest “tough on crime” package. As he reports, while the government intends to ban gang patches, that won’t include symbols used by foreign criminal or terror groups like the KKK. In an interesting report for the Herald (paywalled), Derek Cheng also reveals that justice minister Paul Goldsmith initially rejected a request to ban gang patches in private homes, before changing his mind despite the objections from a number of agencies.
Auckland Airport in trading halt for $1.4bn capital raise
Auckland International Airport has headed to market with the hopes of raising $1.4bn. As BusinessDesk’s Pattrick Smellie (paywalled) writes in a comprehensive explainer of the situation, it’s one of the largest capital raises in recent times. But there are several unknowns, such as why there was no mention in the airport’s recent annual results, and what this all means for Auckland Council. On the latter point, the council still holds an 11% shareholding in the airport, but the market raise would dilute this down to about 10%. Given mayor Wayne Brown wants to sell the remaining stake for an Auckland future fund, it seems unlikely it will stump up $154m to maintain its 11% holding.
Aware and alive: Why motorcycle safety is an issue for car users too
The weather is warming up, and with it motorcyclists are dusting off their bikes and heading out on the roads. But it’s not only motorbike owners who should be brushing up on their road skills – car drivers also need to have motorcyclists’ safety in mind when they get behind the wheel.
This Motorcycle Awareness Month, Z Energy is appealing to all road users to help keep motorcyclists safe. Read why here. (sponsored)
Click and Collect
Chris Hipkins is heading to the UK to attend the British Labour Party conference, and looks set to meet with the new prime minister Keir Starmer.
Meanwhile, a new poll shows support for Hipkins has nosedived.
There has been a lot of chat about Wellington’s cycleways in recent weeks. Joel MacManus shares three maps that show how the bike network has grown.
A “critical minerals list” was unveiled by MBIE over the weekend. The Post’s Tom Pullar-Strecker argues the list “looks like a public policy curiosity”.
An open letter to the government from a group of experts and academics claims the proposed reversal of road speed limit reductions will result in lost lives.
Noted “comedy” The Bear was a big winner at the Emmys, along with Shōgun, Baby Reindeer and Hacks. Did your favourite pick up an award?
Lyric Waiwiri-Smith reminds you about the social media app you forgot about that is on every kid's phone – Snapchat. Alex Casey hails Christian Cullen, the “mysterious smooth guy” of Celebrity Treasure Island. Wellington Girls' College student Orla Sweeney argues that she and her classmates deserve to go to school without worrying that the roof will fall on them. A survey shows that most people approve of compensating survivors, and other responses to polling following the abuse in care inquiry. Hayden Donnell argues that the most anti-AT councillors will miss Auckland Transport the most if a bill to remove the agency succeeds. Plus, here's everything new to streaming services this week.
That’s it for this morning, thanks for reading. I’ll catch you back tomorrow.
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Is it unethical of the Spinoff to headline results from an unethical polling company?
Quite apart from the fact that I thought I read in depth reporting critical of this polling organisation, it is hardly surprising that the leader of the opposition is lower in the polls 1yr into a 3 yr cycle. 1) Corporate media tends not to cover people these days unless they are either hounding them for some behaviour (minor or major according to their perception) or being loud & obnoxious to get click-bait headlines - neither of these is Chris Hipkins' style (thank goodness!) 2) It is apparent that the Opposition has chosen the "don't interrupt your enemy while he/she is shooting him/herself in the foot" strategy, while putting up the relevant spokeperson to call out the behaviour - note that Chris H doesn't choose that role if say Ayesha Verrall is the appropriate person - it keeps the shadow spokesperson up with the play as I have observed elsewhere. Time will tell how things play out, but polls are dubious at any time, polls from THIS organisation are dubious ALL the time, and any relevance polls have is 1>2 months before an actual election if at all.
Credit checks etc. on short-term delayed payments seem like a "nice-to-have" but can see the admin costs for small businesses in checking everyone being onerous, but a sensible cut-off above which it should be compulsory seems like good consumer protection? As for Seymour "DECIDING" that these lenders should be able to charge whatever they like ... 🤬welcome to the upside-down world of NACT1st where a minor little upstart & his cohort can start the slippery slope back to loan-sharks for those driven to use this system because a) they have been put out of work by govt policies and/or b) their support payments aren't enough to get by without borrowing.