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Buy now pay later schemes leaving young Kiwis ‘over-indebted’ – academic
New research by the Auckland University of Technology shows young adults are taking on dangerous amounts of debt through buy now pay later (BNPL) schemes like Afterpay and Laybuy.
Co-author and senior lecturer in finance Ayesha Scott said the survey of 705 young adults aged 18 to 34 indicated thousands more could be in serious debt.
“Over 190,000 young Kiwis are likely to be either over-indebted or at severe risk of it,” she said.
“Buy now pay later had a really strong link to increased over-indebtedness, above and beyond other debts.”
Services like Afterpay let customers buy products in smaller instalments over several weeks, but one in five survey respondents did not view this arrangement as debt.
Photo: 123RF
“Up until very recently, BNPL escaped regulation,” Scott said.
“This is because our definition of debt is quite specific: it needs to be more than eight weeks and have an interest rate attached.”
Most providers did not fit this definition because they limited the repayment period to six weeks and did not charge interest.
“Due to this loophole in our technical definition of debt, BNPL providers were able to market themselves as not debt, and this messaging and slick marketing has really cut through,” she said.
“If it looks like debt, it’s probably debt. But due to a technicality, these providers have been able to market themselves as being different.”
Almost 70 percent of the survey respondents had used BNPL at least once.
And 20 percent were using it “poorly” by incurring frequent late fees, prioritising repayments over daily expenses, or by borrowing from other providers to repay their debts.
But from September 2024, BNPL providers will be required to perform credit checks on their customers.
Scott said that did not go far enough.
“I think there should be affordability checks,” she said. “There absolutely needs to be more oversight and more in-depth regulation that goes beyond what’s already been announced.”
She said the convenience of BNPL services was not worth the damage it caused to 20 percent of young users.
“We’re really promoting and enabling what is a convenient tool at the direct expense of 190,000 young New Zealanders,” she said.
“Those who are using it poorly and are getting into trouble with it, they’re why those protections are needed.”
She said it was important to raise awareness about the darker side of BNPL services.
“What we really want to do is make sure consumers are aware of the pitfalls with these products,” she said.
Laybuy managing director Gary Rohloff said the service aimed to mitigate those pitfalls.
“We strongly believe that BNPL should be offered and used responsibly,” he said.
“It’s for this reason we have always conducted credit checks on customers, meaning Laybuy isn’t available to everyone.”
He said Laybuy was not offered on daily expenses like grocery, fuel and bills.
“We welcome the government’s pledge to introduce appropriate regulation for the sector and think it’s important we raise standards across the industry,” Rohloff said.
A spokesperson for Afterpay questioned the credibility of AUT’s survey.
“Surveying 705 young adults aged is neither nationally representative nor reflective of the way Afterpay is used, more broadly according to Afterpay data,” they said.
They pointed to an August Cabinet paper by the Ministry of Business, Innovation and Employment (MBIE) that noted it was “difficult to demonstrate a clear relationship between BNPL and financial hardship as no substantial quantitative data exists due to the relative newness of the sector and difficulty in assigning causation”.
The spokesperson said 98 percent of purchases through Afterpay did not incur late fees, and 95 percent were paid on time.
Commerce and Consumer Affairs Minister Duncan Webb. Photo: RNZ / Samuel Rillstone
Commerce and Consumer Affairs Minister Duncan Webb said BNPL services would be exempt from affordability assessments because they were different from other forms of lending.
“Buy now pay later schemes are interest-free contracts for relatively small amounts of money,” he said.
“They are relatively low-risk, and requiring a full affordability assessment would be disproportionate and could see access to this useful form of cheap credit withdrawn.”
But Webb did not rule out further regulations in the future. “If there is evidence that these measures are not working, further regulation will be considered,” he said.
VIA RNZ
The chief executive of the Parliamentary Service is confident there will be enough room to accommodate the increased number of MPs and their staff coming into Parliament.
On current numbers, up to 131 MPs could be sitting in the Chamber following the election, brought on by a record overhang result.
Clerk of the House of Representatives Dr David Wilson told the Spinoff that currently the debating chamber had enough chairs to seat 124 MPs – including the Speaker of the House – and work was being done to accommodate more by altering the seating arrangement.
In a statement, Parliamentary Service chief executive Rafael Gonzalez-Montero said planning for a larger Parliament had been going for “some time”.
“Now that the election results have confirmed an increase to the number of members we are looking at several options.
“We are confident we will be able to accommodate all members within the Chamber.”
VNP / Phil Smith
Gonzalez-Montero said office accommodation for members and their staff would be “stretched” for a short time, but the new Members’ Building was only a few months away from “practical completion”.
That building – located behind Parliament – was due to be ready to occupy in April next year and had capacity to accommodate around 30 backbench MPs.
“All members should be in fit-for-purpose accommodation from that point,” Gonzalez-Montero said.
Following the 2023 election, 123 MPs sat in the Chamber – a record number at the time. That decreased to 122 following the resignation of National MP Judith Collins.
Collins held the seat of Papakura and stepped down in May and Parliament voted against holding a by-election because it was too close to the election.
The election result also meant high-ranking National Party MPs like Chris Bishop, Paul Goldsmith, Nicola Willis and Gerry Brownlee – Speaker of the House and an MP for 30 years – would likely not make it back into Parliament.
Only resigning or retiring MPs were permitted to give a valedictory speech meaning none of them would get the chance to give a valedictory statement.
Asked if their would be special allowances for valedictories, Wilson said in a statement that normally only MPs were allowed to speak in the House but the House could suspend its own rules or temporarily alter them.
“It could do so to allow former members to address the House.”
Wilson said no such arrangements could be made until the next Parliament opened and members sworn in.
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