Afterpay in New Zealand is making almost $20 million a year in income from late fees, despite the service being provided interest-free.
By Susan Edmunds of RNZ
When someone makes a purchase using Afterpay, they do not pay any charges provided they pay the debt off according to the schedule. The merchant accepting the payment pays a fee.
But when someone paid an instalment late, they were charged fees.
For orders up to $40, a one-time late fee of up to 25% of the total was charged. For orders over that amount, a $10 late fee was charged when a payment was missed. If it remained unpaid after seven days, another $7 was charged. This applied until a cap of 25% of the total borrowed or $68, whichever was lower, was reached.
Afterpay's results for the year to December showed it made $18.5 million in late fees in 2024, which rose to $19.7 million last year. It has been approached for comment.
Centrix data for April showed that, for the sector as a whole, arrears improved to 8.8%, ended a ruining of monthly increases.
Consumer NZ spokesperson Gemma Rasmussen said buy-now-pay-later services had been under the Credit Contracts and Consumer Finance Act since September 2024, to strengthen consumer protection.
"As part of these changes, from November 2024, BNPL providers became exempt from section 41, which prohibits unreasonable fees, and section 44A, which requires default fees reflect actual costs.
"These exemptions mean that late fees no longer need to reflect the true cost incurred, multiple late fees can apply simultaneously across different purchases, and fee protections are weaker than those that apply to other consumer credit products.
"We believe this exemption significantly weakens consumer protection and reduces consistency within the CCCFA framework. Combined with ongoing cost-of-living pressures, these weaker safeguards could have contributed to an uptick in revenue from late fees."
She pointed to earlier work by Consumer that found that the reforms had enhanced regulatory oversight and formally added buy-now-pay-later to the consumer credit framework but had failed to address key drivers of consumer harm.
"Over-commitment and financial hardship were the central pre-reform concerns and these still persist, with hardship cases involving BNPL continuing to rise. BNPL use for essentials and alcohol also remains widespread.
"Although consumers now receive stronger legal protection in principle, structural gaps in the framework mean the reforms have not effectively reduced unaffordable lending or the associated financial harm."
Fincap spokesperson Jake Lilley said the regulations needed urgent attention.
"When someone ends up paying a late fee on already used essentials like petrol or food they end up even further behind trying to access essentials in the future. It risks a debt 'treadmill' that just keeps accelerating.
"Financial mentors continue to be frustrated, telling FinCap that difficulty paying back buy now pay later lenders is adding more pressure for so many of the whānau they support. These whānau are just trying to survive and keep food on the table."
He said the research with Consumer found lenders offered practical options for people having trouble paying.
"The earlier someone lets these lenders know they are having trouble or alternatively, the earlier they contact free and confidential support via the MoneyTalks helpline, the greater the likelihood they can avoid debt collection issues or going without the essentials.
"We have been recommending work to licence debt collection as we see tricky buy now pay later debts head that way. Also for the regulations for these loans to be fixed soon after the current Financial Service Reforms get through Parliament."
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