Financial Counselling Australia has renewed its call for regulation of the buy now pay later sector, after a survey of its members revealed BNPL debt is a growing contributor to household financial stress.
Eighty-four per cent of financial counsellors surveyed said that half, most or all clients had BNPL debt. This compared with 31 per cent a year ago.
Sixty-one per cent of counsellors said most or all clients with BNPL debt are struggling to pay other living expenses, with many clients prioritising BNPL repayments over other essential expenses.
The report said: “BNPL companies are falling short in their handling and support of customers in hardship. Accessing BNPL credit is frictionless at the start of the customer journey but many clients and their advocates face significant challenges when trying to negotiate hardship arrangements.”
Asked to rate the hardship practices of BNPL providers that are members of the Australian Finance Industry Association’s BNPL Code of Practice, counsellors gave Afterpay 5.9 out of 10, Zip 5.5, Latitude Pay 5.2 and Humm 4.7.
Counsellors reported that companies were hard to contact and communicate with and were not responsive to the needs of clients. There were instances of company representatives not understanding financial hardship, being judgmental or not responding appropriately to family violence.
“These ratings overall indicate the industry has a long way to go,” the report said.
Feedback from counsellors was that the absence of a legal requirement to undertake affordability assessments and credit checks makes it too easy to access BNPL, and people are becoming overcommitted with multiple BNPL accounts.
One practice that concerned counsellors is providers automatically increasing a customer’s limit based on repayment history – a potential cause of over-commitment.
“This is reminiscent of practices in the credit card industry that were banned,” the report said.
Counsellors also reported that BNPL is being used to pay for essentials, such as groceries, medication and utility bills, and that users can be trapped in a debt cycle.
“BNPL is credit and, like other credit products, should be regulated under the National Credit Code. We are calling on the Australian Government to commission an independent review of the existing legal framework, with a view to developing a fit-for-purpose regulatory response that will make BNPL safer for all users.”
FCA said the emergence of wage advance products, whose providers exploit the same gap in regulation, risks causing further harm.