A leading financial counselling service says buy now pay later debt has become pervasive among its clients and more people are cutting back on essentials to service BNPL debt.
Good Shepherd Australia and New Zealand has released a report on BNPL debt and financial vulnerability, saying BNPL debt increased eight-fold among its clients between 2017 and 2021 and is currently used by 25 per cent of clients who rely on social security as their main source of income.
“Contrary to the characterisation of BNPL as a discretionary spending tool, people on lower income are using BNPL for essentials. At Good Shepherd, 75 per cent of practitioners report BNPL use for children’s needs, such as clothing and baby products, followed closely by furniture and household appliances, and food and groceries,” the report said.
“Low and inadequate incomes appear to be driving BNPL use.”
Good Shepherd has called for the inclusion of payment difficulty protections in the BNPL regulatory regime being developed by the government.
“At present, unaffordable debt can be lawfully issued by BNPL providers,”
Good Shepherd said practitioners also reported a significant level of “coercive debt” using BNPL accounts. Coercive debt occurs where one partner forces the other partner to open a credit account or opens an account in the partner’s name.
Seventy-three per cent of Good Shepherd practitioners said they have seen clients miss essential payments or cut back on essentials in order to service BNPL debt, and 84 per cent said that clients with BNPL debt have tried to manage the debt by opening additional BNPL accounts.
“Good Shepherd frequently sees financial stress and hardship among clients using BNPL.”
The report is critical of the way BNPL charges are structured. “BNPL is marketed as a ‘no interest’ alternative to credit cards. This results in misconceptions about the nature and potential costs of BNPL. Clients commonly see BNPL as something other than credit/debt and are in the dark about the effective interest rates.”