Budgeting services are warning people not to get carried away with buy now pay later products if they're struggling to get by during the lockdown.
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Official documents show that following last year's nationwide alert level 4 lockdown, there was a significant uptake in buy now pay later usage compared to uptake for other credit products.
More recent data presented in a briefing to the Minister of Commerce and Consumer Affairs David Clark indicated the use of buy now pay later payment grew 10 percent in New Zealand last year and its use could outstrip card payments for e-commerce by 2024.
Stephanie, which is not her real name to protect her privacy, started using Afterpay a couple of years ago. She started with just buying the odd thing when she did not quite have all the cash upfront.
Then she discovered their rewards scheme.
"They introduced me to Pulse. So the more you spend the more Pulse you get and Pulse is a reward so that you don't have to have the money upfront so the first payment comes in two weeks after you've bought the item."
With Pulse the more you spend the greater the rewards, and Stephanie was soon hooked.
"$10 off a $50 purchase at Glassons and things like that I might not need anything from Glassons but $10 off ... I might just have a look and see what they have."
She quickly began buying more than she could afford, and soon faced multiple repayments adding up to more than $200 a week.
She prioritised making the repayments over paying other bills in order to hold onto her rewards.
"I was doing all my shopping around Afterpay, around Pulse, and what I could get. Our food, pet needs like flea treatment for my cat. I'd get Afterpay for my meat ... I'd get eight weeks to pay for it but the food was gone in a week.
She had since sought help from the budgeting service Christians Against Poverty and was working her way out of debt.
A spokesperson for Afterpay said Pulse rewarded customers who spend responsibly and its whole business model was based on individuals being able to manage their money.
"Afterpay is committed to supporting responsible spending and has systems in place to protect vulnerable New Zealand consumers. When determining which orders to approve, Afterpay considers a number of different factors. As an example, the longer you have been a shopper with Afterpay and the more orders you have successfully repaid, the more likely you will be able to spend more.
Afterpay makes up approximately 40 per cent of the New Zealand buy now pay later market share.
"Afterpay takes on the full risk of repayment, which means Afterpay is incentivised to encourage responsible spending," the spokesperson said.
Concerns around regulation
But Christians Against Poverty social policy advisor Michael Ward said it was a real concern that buy now pay later products were not regulated in the same way as other credit products.
"One of the key lender responsibilities in New Zealand is that lenders make sure that loans aren't going to be unaffordable," Ward said.
"With buy now pay later products, they're not subject to those same affordability assessment requirements so they're a real risk that more people are taking on these loans that they're not going to be able to repay.
"We're actually considering them a real ticking time bomb for those who are experiencing financial hardship and we expect the problem to become worse."
Because the products do not charge interest, fees or take a security interest over goods this means they are exempt from requirements under the Credit Contracts and Consumer Finance Act - although they are subject to the Fair Trading Act.
Providers are required to be registered on the Financial Service Providers Register and be a member of an approved dispute resolution scheme.
Previously, officials did not see the sector as a significant cause for harm, but official briefings this year show more reports from budgeting services and consumer advocacy groups that they are causing hurt and the sector is not adequately regulating itself.
"Recent interactions with providers suggest the industry is evolving at pace," a briefing to Clark from officials said in June.
"Our assessment of the policies suggests there are a lack of minimum standards and that as of February 2021 implementation across providers is fragmented. In effect, the policies primarily help providers manage their default risks rather than minimising consumer harm."
FinCap policy advisor Jake Lilley said budgeting advisors were worried about what they would see at the end of this nationwide lockdown.
"Financial mentors have been reporting since that first lockdown a lot more complex cases coming through the door. So it was almost immediate and they've just noticed a constant trickle of people getting into these more complex issues with debt, for instance, just having so many overlapping at the same time, which is a real risk with buy now, pay later products," Lilley said.
"Just in recent weeks [we had] a solo mum who came in for a bit of help with 11 debts, nine of those were with buy now pay later lenders and in the course of one month she was having to juggle sufficient funds in her bank account to get 43 separate payments going out on time."
Clark said officials had been asked to monitor for significant increase in use of buy now pay later products which could indicate concern and that the department was working on a discussion paper that would be put out for public consultation.
"We understand that providers are working to establish their own Industry Code to embed consistent protections across the various providers.
"I have also tasked officials with preparing a discussion document to test understanding of the benefits and risks of BNPL products and the possibility of regulation to mitigate harms currently occurring. As part of this, officials are working with providers and consumer advocacy organisations to understand the issues and a discussion document will be released later this year for public consultation on the issues."
That document is expected to seek views on affordability assessments and credit limits.