Buy now, pain later for debtors

‘‘It’s kind of like ... if credit cards and cash had a baby, you could pay over time without ever paying interest’’, says Rebel Wilson in the Afterpay advertisement.

Nga¯ Ta¯ ngata Finance general manager Natalie Vincent is annoyed the Australian actor has chosen to front advertising for buy now, pay later loans, which she’s seeing turn up again and again in the debit column of families who can no longer make ends meet.

‘‘The messaging is absolutely screwed up,’’ she says. ‘‘We need to acknowledge this is debt. There are default fees, if you don’t pay on time,’’ Vincent says.

‘‘The messaging should be that this is great for emergency expenditure, not to get a dress from Glassons to go out on Friday night.

‘‘It’s not this new clever, very modern way to manage your finances.’’

Buy now, pay later loans are interest-free and repaid over a short period of weeks.

They are commonly used by young people to buy consumer goods they can’t immediately afford. The price of the finance is embedded across the prices of all the goods the retailer sells.

Nga¯ Ta¯ ngata Finance is a nonprofit organisation backed by Kiwibank and offers loans for people on low incomes.

Vincent says 60 per cent of people aged 26 to 30 seeking help have one or more buy now, pay later loans.

One who was living alone on a benefit of $422 a week, including the winter energy payment, had total buy now, pay later debt of $403.81. Their income was $15 below their weekly living costs.

Another, a sole parent with benefit income of $825 a week, had total consumer debt of $4000 including a buy now, pay later debt of $1400, and debt collectors were demanding payment. She was living in social housing.

‘‘We have got people on benefits paying off Avanti Finance on 39.95 per cent for something ridiculous, and they have got six buy now, pay later accounts, and $15,000 of debt they can’t pay. How did they get these buy now, pay later accounts?’’ Vincent says.

An analysis of clients over the past four months showed that two had accounts with every buy now, pay later lender in the country, making up to 16 payments a month. ‘‘It’s mindblowing,’’ she says.

‘‘This is going to be the next train wreck, and we are only seeing the start of it.’’

Action is needed to stop people on low incomes, including benefits, from being able to sign up to multiple accounts, she says.

But she is also concerned that the Government is contemplating over-regulating buy now, pay later loans by bringing them under the full suite of lending laws, which make it more expensive, or disappear entirely.

‘‘We don’t want to see this so highly-regulated, it’s off the market,’’ she says.

‘‘Financial inclusion is one of our primary aims. If this is a mainstream banking product, if it’s interest-free, and used well, there’s actually benefit for

people here.’’

Not wanting regulatory overkill is something Vincent has in common with the industry itself, which has met Commerce Minister David Clark, asking him to approve a code of conduct for the industry similar to the one in Australia.

Gary Rohloff, managing director of Laybuy, which has grown to become a global business, says Clark will be influenced by both the Australian code, and also Britain’s recently-published Wollard Review into unsecured lending.

The author, Christopher Wollard, told the British Government in February that new credit products like buy now, pay later were unregulated, and needed to be regulated urgently.

‘‘Regulation should focus not just on affordability, but on conduct across the lifetime of the product,’’ Wollard said.

Some of his concerns echoed Vincent’s, including that the public did not think of buy now,

pay later as debt and assumed it was regulated to minimise consumer harm.

He was also worried that it was possible to open multiple accounts, and that lenders could lift the credit limits on accounts without asking the accountholders.

Rohloff says not all buy now, pay later

providers in New Zealand carry out credit checks on customers.

The draft code of practice will require credit checks, and also credit reporting, so when a person applies for an account, the buy now, pay later lender can see whether they had other accounts, he says.

Most buy now, pay later lenders do credit checks, and Rohloff believes Vincent is seeing the result of the ones who do not.

‘‘I can’t see how there is harm being caused to consumers when there’s a credit check run.’’

Laybuy’s loans in New Zealand have a less than 1 per cent default rate, and the average transaction value was $137, he says.

‘‘This is going to be the next train wreck, and we are only seeing the start of it.’’ Natalie Vincent Nga¯ Ta¯ngata Finance general manager