Debt spiral: Buy Now Pay Later now being used for essentials. People left much worse off, survey finds

Buy Now Pay Later (BNPL) use has ballooned over the past year, with soaring numbers of people resorting to the unregulated credit for basics, such as food, fuel and energy, as Australians struggle with cost-of-living pressures.

In a survey of more than 500 financial counsellors (around half the sector), 95 per cent of counsellors reported that BNPL debts were leaving their clients worse off, with almost two-thirds of clients grappling with BNPL debts.

The report, Small Amounts – Big Problems, is the most comprehensive yet to canvass financial counsellors and found while 82 per cent reported their clients used BNPL to pay for general retail, such as clothing or electrical goods, worrying numbers of people were also using it to pay for essentials.

• 71 per cent of counsellors said clients commonly use BNPL to pay for food
• 41 per cent said clients commonly use it to buy fuel
• 32 per cent said clients commonly use it for utilities, such as gas or electricity
• 93 per cent said more clients are using BNPL for essentials generally.

The hardship responses of BNPL providers were also found wanting. Financial counsellors were asked to rate providers on a scale of one to 10, where 10 was the highest score. A score of seven would be acceptable. The results were: Afterpay 5.8; Zip 5.1; Humm 4.6; Klarna 4.2; Brighte 3.5. (Note that Brighte provides larger BNPL loans commonly for solar panels.)

In May, the Federal Government announced BNPL providers would be required to comply with modified responsible lending obligations under the credit laws. The Government is now consulting about the detail of those laws.

The survey results reinforce the need for these new laws to adequately address the harms caused by BNPL: the provision of unaffordable credit, multiple BNPL accounts, BNPL being used as a tool for financial abuse and the lack of adequate hardship responses by BNPL providers.

Financial Counselling Australia CEO Fiona Guthrie said the risk of “modified” responsible lending laws was that it may simply result in being business as usual for the BNPL industry, without making any meaningful difference. As a minimum, responsible lending, regardless of the amount lent, must include income verification and an appropriate credit check. Larger BNPL loans should be subject to full responsible lending obligations.

“BNPL was never intended as a way to pay for everyday living expenses,” Ms Guthrie said. “But the ease of accessing BNPL loans, combined with mounting cost-of-living pressures has meant more people are resorting to it just to get by. But with BNPL so hard to keep track of, debts can very easily snowball, leading far more people to seek financial counselling.”

BACKGROUND

In May 2022, more than 120 community groups signed an open letter calling on the new Government to regulate BNPL as conventional credit, with the same safe lending rules as other comparable forms of credit, following the groups’ experience of mounting cases of financial hardship fueled by BNPL. In May 2023, the Government revealed it would regulate BNPL by introducing modified responsible lending obligations under the credit laws.

MEDIA CONTACT
Financial Counselling Australia, contact Mike Bruce 0403 920 189