On Tuesday, Duncan Webb, the Minister of Commerce and Consumer Affairs, made an announcement about the Government’s plans to:
- regulate Buy Now Pay Later (BNPL) products under the Credit Contracts and Consumer Finance Act 2003 (CCCFA); and
- review the CCCFA to include exemptions for lending relating to targeted rate scheme loans administered by local and regional councils and for people affected by emergency events from CCCFA obligations.
The announcement also included a teaser indicating a wider review of the CCCFA noting “it’s important to keep the CCCFA up to date to ensure it continues to strike the right balance between protecting vulnerable consumers and having a healthy and effective market for credit”. This will be welcome news to many although no detail has been forthcoming.
BNPL credit contracts
Late last year the Government published draft regulations bringing BNPL products in to regulation under the CCCFA (see our discussion on this here). Webb in his announcement confirmed that changes are coming to how BNPL products will be regulated, however, the Government recognises that some adjustments to the proposed draft regulations are necessary to make the legislation workable.
Cabinet has taken the view that BNPL products need to have an exemption from affordability and suitability assessments under the CCCFA on the basis that suitability and affordability are too onerous for short term, low value, and interest free loans of this type. However, BNPL providers will have to complete comprehensive credit reporting of their customers when they sign up to the BNPL product or increase their credit limit.
The Government will release the revised regulations shortly.
New CCCFA exemptions
Webb further announced the Government is considering two new exemptions from CCCFA obligations:
- For lending provided to customers who are affected by emergency events. This will be a permanent extension of the temporary exemptions that were put in place after the Auckland floods and Cyclone Gabrielle earlier in 2023. This temporary exemption removed the CCCFA requirements for affordability assessments for temporary overdrafts and home loan top-ups of up to $10,000, supplied to existing customers. This temporary exemption at the start of 2023 allowed lenders to provide credit more quickly to those affected. The Government acknowledges that this will be an important exception as these emergency events are becoming more frequent.
- For voluntary targeted rate scheme loans. These low-cost loans are usually for sustainable home improvements like insulation and are administered by local and regional councils. This exemption is expected to carve them out completely from the CCCFA and avoid unnecessary compliance costs on the part of councils.
Our view
We look forward to the general review of the CCCFA which is, in our view, an unnecessarily prescriptive and onerous piece of legislation. We also welcome the new exemptions announced by the Government, as these exemptions recognise the problem with the CCCFA’s “one size fits all” nature.
Lastly, we note that we are not sure whether excluding BNPL products from suitability and affordability requirements engages on the customer harm concerns raised in the BNPL space. We look forward to the revised regulations to be published in due course.
This article was co-authored by Travis Mackie, Solicitor, and Sofia Manai, Law Clerk, in the Banking and Financial Services team.
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