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The Government’s reason for exempting Buy Now Pay Later (BNPL) providers from the default fee requirements in the Credit Contracts and Consumer Finance Act 2003 (CCCFA) is to protect the sector’s commercial viability.
The rationale for the BNPL default fee exemption is laid out by Commerce and Consumer Affairs Minister Andrew Bayly in a Cabinet paper released last week.
In essence, the rationale is that the provisions to which the exemption would apply (sections 41 and 44A, which were to commence on 2 September 2024), were designed for traditional credit products where there is scope to recover other costs through interest charges. But BNPL contracts do not charge interest on instalment repayments, instead relying on revenue from merchant service fees and default fees.
The paper states that:
"The unintended impacts of the application of the CCCFA default fees provisions could reduce access for consumers to BNPL.”
“If BNPL business models are no longer viable under the CCCFA fee provisions, they might all exit the market. This would either restrict access to short-term and small-amount loans to New Zealanders or make these loans more expensive, where the borrower moves to an interest charging product, e.g., credit card, short-term personal loan."
Please get in touch with one of our experts if you would like more information about the proposed changes arising from the Cabinet decision.
