Afterpay is generating nearly $20 million annually from late fees in New Zealand, raising concerns about the actual cost of the “interest-free” service for struggling consumers.
The Cost of Late Payments
While Afterpay does not charge interest and allows users to avoid fees if debts are paid according to the agreed schedule, the company earns significant revenue when payments are missed. According to results for the year ending in December, Afterpay’s late fee income was $18.5 million in 2024, increasing to $19.7 million last year.
The fee structure varies based on the order amount:
- Orders up to $40: A one-time late fee of up to 25% of the total.
- Orders over $40: An initial $10 late fee is charged upon a missed payment. If the balance remains unpaid after seven days, an additional $7 fee is applied.
These charges continue until they reach a cap of either $68 or 25% of the total borrowed amount, whichever is lower.
Regulatory Gaps and Consumer Protection
Buy-now-pay-later (BNPL) services were brought under the Credit Contracts and Consumer Finance Act (CCCFA) in September 2024 to improve protections for users. However, new exemptions introduced in November 2024 have drawn criticism from consumer advocates.
Gemma Rasmussen, a spokesperson for Consumer NZ, noted that BNPL providers are now exempt from section 41, which prohibits unreasonable fees, and section 44A, which requires default fees to 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,” Rasmussen said.
Rasmussen argued that these weaker safeguards, combined with ongoing cost-of-living pressures, could have contributed to the increase in late fee revenue. She further stated that while regulatory oversight has improved, the reforms have not effectively reduced unaffordable lending or addressed the “central pre-reform concerns” of financial hardship and over-commitment, noting that BNPL use for alcohol and essentials remains widespread.
The ‘Debt Treadmill’
The impact on vulnerable households has been highlighted by Fincap spokesperson Jake Lilley, who warned that the current regulations require urgent attention. Lilley described a risk of a “debt ‘treadmill’ that just keeps accelerating,” particularly when users pay late fees on essentials such as food or petrol, leaving them further behind in their ability to afford basic needs in the future.
Lilley reported that financial mentors have expressed frustration to FinCap, stating that the difficulty of repaying BNPL lenders is adding significant pressure to the whānau they support.
Potential Solutions and Next Steps
Despite the challenges, research conducted with Consumer found that lenders do offer practical options for those experiencing payment difficulties. Experts suggest that the likelihood of avoiding debt collection or missing essentials is greater if consumers contact lenders early or seek free, confidential support via the MoneyTalks helpline.
Looking ahead, Fincap has recommended the licensing of debt collection as BNPL debts move toward that stage. We find calls for the regulations governing these loans to be fixed shortly after the current Financial Service Reforms pass through Parliament.
Recent data from Centrix for April indicated that arrears for the BNPL sector as a whole improved to 8.8%, ending a period of monthly increases.
