Regulations cannot come soon enough for buy now pay later loans, according to financial mentors who say their services are the busiest they have ever been, with festive season spending creating a debt spiral.
Services like Afterpay, LayBuy and Zip Pay offer interest free repayments staggered over several weeks with late fees if a payment is missed.
The government is set to release final regulations for them this year but mentors said the draft proposal did not go far enough to protect vulnerable people.
At just about every shop counter you will find a placard advertising a buy now pay later scheme.
Because the loans do not charge interest like a credit card, they do not fall under the Credit Contracts and Consumer Finance Act.
It was a popular option for some shoppers in Tāmaki Makaurau.
"Oh Christmas presents, clothes, yeah all sorts of things because I don't have to pay it out all at once," one person said.
"Tickets to Queenstown, yeah concerts mainly," another said.
The variety of products able to be purchased was expanding, with alcohol, parking fines and even holidays on the list.
It was a mixed bag when it came to how often people used them and how much they spent.
"Monthly probably, yeah quite often, normally I don't spend over $100... probably $200-$300 max yeah that's probably about it other wise I can't pay my bills," a shopper said.
"Sporadically really, mainly Christmas, birthdays, things like that, I've put a couple of big things on, probably about $3000-$4000," another said.
In 2021 $1.7 billion was spent by shoppers using BNPL, up from $755 million the previous year.
Research from Consumer New Zealand showed half of households with incomes below $50,000 had used the schemes to pay for essential products.
Most of the schemes charged a late fee if a payment was missed, usually around $10, but a customer's credit may still increase regardless of missing payments.
Research also showed 20 percent of By Now Pay Later users made their re-payments with a credit card, creating a double cycle of debt.
Financial mentor Tim Laurence said one client's credit increased from $300 to over $1000, despite paying $800 in late fees.
"Every other business would be saying this is a bad customer or someone we shouldn't be touching, but for buy now pay later that kind of fits the mould... they're paying the late payment fees, you're making even more profit on top, plus what they charge the retailer, so they just keep increasing and encouraging that person to spend."
Last year the government announced better protection for New Zealanders using the schemes would be implemented this year.
It agreed affordability checks should be required for buy now pay later loans but were only suggesting this for loans over $600.
But Tim Laurence said that figure was far too high to protect lower income borrowers.
"You can spend $600 at three or four different retailers... why do we have this triple CFA law that's making lenders lend responsibly and then we're letting some lenders get out of it."
Senior Policy Advisor for financial charity FinCap Jake Lilley said this time of year was extremely difficult with the hangover of Christmas spending and back to school costs.
"Just heard from our Money Talks helpline that they're seeing the biggest numbers they've ever seen so far in January out of any time that the help line has operated, so people are feeling the pinch."
Commerce and Consumer Affairs Minister's response
In a statement the Minister of Commerce and Consumer Affairs David Clark said "last month the Ministry of Business Innovation and Employment opened consultation on the details of regulations for Buy Now Pay Later schemes".
"The $600 threshold for affordability checks strikes the right balance between protecting consumers and enabling low cost credit," Clark said.
A consultation process would allow officials to ensure that the right balance had been set, he said.
The public is invited to make submissions with final regulations set to be made later this year, Clark said.
"Borrowers facing unforeseen hardship can apply to the BNPL provider to have their repayment contract varied, providers will also need to implement policies and procedures which set out how they identify repayment difficulties, and how they manage the loans of borrowers who are having difficulties," he said.
If Buy Now Pay Later providers were brought into the Credit Contracts and Consumer Finance Act it would require them to belong to a financial disputes resolution scheme, like other providers, Clark said.