A rapidly growing market for buy-now-pay-later providers is concerning, the North Otago Budget Advisory Service says.
During last year’s lockdown, there was a big spike in online shopping and a coinciding rise in the use of buy-now-pay-later providers, which were leading some people into financial hardship, North Otago financial mentor Mary Bulatao said.
There are several providers in the market, including Afterpay, Oxipay, PartPay and Laybuy. Shoppers can buy and receive items immediately, but pay them off over up to 10 weeks from their debit or credit card.
If people met all their payments, it was an interest-free way to spread the cost of a purchase, but Mrs Bulatao had seen how easily the services became a trap in which people spent money they did not have – and there were hefty fees if things went wrong.
Their big appeal was convenience.
“You can be at home on your computer and just buy what you want.
“Everybody is being lured to ‘buy now’ . . . it’s enticing.”
Shoppers were given set limits on how much they could spend with each platform, but each operated independently, so it was possible to have accounts running with a range of providers.
Spending limits were often extended after more purchases were made.
“People get in the mindset where they think, still have $300 to spend’, but it’s not [their] money.”
Spending $5 here and $10 there did not seem like a lot, but could easily snowball and become hard to keep track of, Mrs Bulatao said.
One woman accessing the North Otago Budget Advisory Service had 23 buy-now-pay-later purchases to pay back at once.
Another was seeking help after making many purchases while pulling in a steady income, but had become ill and could no longer work, nor make payments.
When people were finding themselves struggling to keep up with their payments, Mrs Bulatao helped them prioritise which ones to pay first – and when.
“You can owe a lot very quickly.”
Mrs Bulatao said some of the companies conducted credit checks, but others did not – preying on vulnerable people.
“It’s not responsible lending,” she said. “It’s geared towards people who don’t have a lot of money.”
Under the Credit Contracts and Consumer Finance Act 2003, lenders had a responsibility to ensure there was an affordability to repay, she said.
But because many of the buy-now-pay-later services advertised a “no interest” policy, they were not regulated under the Credit Contracts and Consumer Finance Act (CCCFA), a Ministry of Business, Innovation & Employment (MBIE) spokesperson said.
Therefore, the services were exempt from the Act’s requirements and associated regulations, and many did not conduct the usual checks, Mrs Bulatao said.
But an individual’s credit score could be affected, depending on their use of the service and unpaid payments could be put in the hands of debt collectors.
An Afterpay spokesman told the Oamaru Mail that although the company did not conduct credit checks, it did not report late payments.
If a customer missed payments it would not allow them to make any more purchases until they were up to date.
Afterpay’s spending limit started at about $500 and would only extend if user had a track record of paying on time.
Purchase approval depended on the amount of orders a customer had “open”, funds available on their card, the value of the order, and how long they had been using the service.
The company had a financial hardship policy since its inception, allowing late fees to be waived or moving payment dates, the spokesman said.
MBIE understood buy-now-pay-later providers were working to establish their own industry code.
The ministry was monitoring this progress, and had power under the CCCFA to extend legal requirements to buy-now-pay-later services, if industry-led measures were unsatisfactory.