Sharp rise in people missing repayments on buy now, pay later consumer loans

More people are running into trouble with buy now, pay later loans as the cost of living crisis deepens.

Buy now, pay later (BNPL) providers offer short-term, interest-free loans which people can use to buy anything from groceries to clothes to electronics. Platforms include Afterpay and Laybuy.

While borrowers do not pay interest if things go to plan, late fees are added when payments are missed.

Data from credit reporting company Centrix shows arrears on BNPL loans are spiking, and that trend is prompting renewed calls for David Clark, Commerce and Consumer Affairs Minister, to bring BNPL under responsible lending laws.

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In April, 8.9% of BNPL accounts were in arrears, with borrowers having missed repayments, facing late fees, and possibly having their debts sent to debt collectors.

Clark has been considering whether BNPL loans should be covered by responsible lending laws, designed to prevent lenders from giving loans to people who will struggle to repay.

Without responsible lending laws, there was too much room for harm to vulnerable people from BNPL, said Natalie Vincent, chief executive of Ngā Tāngata Microfinance, which helps struggling borrowers get out of problem debt.

“We are seeing that harm increasing over the last 12 months,” she said.

“We are seeing more and more of the BNPL debt ending up with debt collectors.”

Vincent said Ngā Tāngata Microfinance was seeing an increase in the “stacking” of debt, where borrowers with multiple other loans were still able to get BNPL loans.

“That’s why there needs to be regulation under the responsible lending rules. We have people coming to us who have $15,000 in consumer debt across finance companies, credit cards, and they shouldn’t be able to stack more on top of that,” she said.

Financial mentor agencies like Fincap, and consumer protection advocate Consumer NZ have also called for BNPL to be regulated, though the BNPL industry has warned regulation would push its costs up.

Keith McLaughlin, chief executive of Centrix, said: “Often discretionary spending debts like BNPL are the first to see increased arrears in challenging financial times, an indication of Kiwis prioritising their credit repayments, which could also be a signal of further financial stress in the future.”

April saw a 12% rise in consumer loans in trouble across all types of loans, he said.

By contrast, missed repayments on home loans continued to fall, McLaughlin said.

Demand for consumer loans had fallen as household confidence to spend weakened in the face of high inflation, Centrix reported.

And demand for new home loans was also down sharply as bank economists predict further falls in house prices.

“Consumer credit demand was down 9% year-on-year in May 2022, while the demand for new mortgages was down 27% over the same period,” McLaughlin said, comparing April this year with April 2021.”

Demand for credit cards was down 25% in May compared to May last year.

Despite the tough economic times, McLaughlin said new company registrations were rising, and liquidations falling.

“The balance between Kiwi businesses returning to relative normality and consumers reducing discretionary spending will be a challenge in the coming months,” McLaughlin said.