In November 2022, the Government and the Ministry of Business and Innovation (MBIE) announced upcoming changes to the regulation of Buy Now Pay Later (BNPL) providers (read our article on this here). This announcement stated that BNPL products will be brought within the scope of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and the Credit Contracts and Consumer Finance Regulation 2003 (Regulations).
On 19 December 2022, MBIE released a consultation paper and draft regulations on this policy. Submissions close on 24 February 2023.
You can find the consultation paper, draft regulations and template submissions form here.
Effect of draft regulations
The draft regulations declare that a “BNPL contract” is a “consumer credit contract” for the purposes of the CCCFA. This means borrowers under a BNPL contract will be given similar protections to borrowers under traditional consumer lending products (such as home or personal loans or credit cards).
A key difference in the proposed regime is the extent of the affordability assessment. Unlike a traditional product, the current draft regulations provide that:
- A BNPL provider is not required to complete an affordability assessment if the total credit limit is under $600 and the BNPL provider carries out comprehensive credit reporting. The total credit limit is defined as the maximum unpaid balances under all BNPL products between the lender and the borrower, i.e. it does not include limits or balances under other BNPL products.
- A BNPL provider will be subject to the responsible lending principles, including section 9C(3)(a)(ii) relating to affordability. Under section 9C(3)(a)(ii) a lender is required to determine that it is likely a borrower can make payments under the contract without suffering substantial hardship. However, as currently drafted, a BNPL provider is not required to undertake the full affordability assessment as prescribed by the Regulations to support its compliance with this obligation. This means it will be a question for the BNPL providers to determine what is necessary in the circumstances.
Consultation paper
MBIE is seeking feedback on all aspects of the draft regulations. Some thoughts for consideration include:
- The definition of BNPL contract – BNPL contract is currently defined as a contract entered into between a lender and a debtor which (i) provides credit to enable the debtor to buy goods and services from a third party; (ii) in respect of which the debtor is not charged interest or credit fees; and (iii) in circumstances where the debtor is a natural person. This definition means that lenders who offer BNPL services to assist in the purchase of their own goods may not be covered by these draft regulations.
- The exemption threshold of $600 – The draft regulations currently include an exemption from affordability assessments for BNPL contracts with a total credit limit of less than $600. This exemption is subject to a requirement to carry out comprehensive credit reporting. As “total credit limit” only takes into consideration BNPL loans that the lender has with the borrower, it does not deal with issues of aggregation across providers.
In addition, MBIE is seeking feedback on whether there are any other obligations of the CCCFA that may need adjusting for BNPL.
Submissions are open until 5pm on 24 February 2023.
To learn what the proposed changes may mean for your business or if you would assistance on a submission, please contact one of our experts below.
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