A new survey of financial counsellors about the impact of buy now pay later (BNPL) on their clients is a wake up call to the community about this new form of debt.
The report’s title says it all: It’s credit, it causes harm and we need safeguards.
The report was released today by Financial Counselling Australia and the state and territory financial counselling associations.
61% of financial counsellors surveyed said most or all their clients with BNPL debt are struggling to pay other living expenses. Clients are experiencing financial stress because they have become overcommitted in using the product.
“Financial counsellors are seeing people with multiple buy now pay later debts. They are really concerned that so many clients are using the product to cover essentials like food, medications and utility bills,” said the CEO of Financial Counselling Australia, Fiona Guthrie.
“This is very worrying, especially as we head into Christmas which is traditionally a time of heavy spending. Buy now pay later could leave people with a financial hangover come January,” Ms Guthrie said.
New BNPL products are continuously coming onto the market and the sector will continue to grow. BNPL can be used for small purchases such from a pair of shoes to a night out at the pub, to larger purchases of up to $30,000 for cosmetic surgery or solar panels for your house.
“As the market grows, financial counsellors are seeing more clients with buy now pay later debt. 84% of financial counsellors surveyed said that about half, most or all clients presented with BNPL debt now. This compared to just 31% a year ago,” she said.
The survey also found industry hardship practices are falling short – clients and financial counsellors are facing significant challenges when addressing hardship with the companies that provide these products.
“Financial counsellors want to ensure BNPL is a safe product for everyone. We know that many people find the product useful, but as our survey shows many people are also experiencing harm,” said Ms Guthrie.
This is consistent with last year’s release of an Australian Security and Investments Commission (ASIC) report which showed one in five BNPL users cut back or went without essential items, such as food, due to being overcommitted with BNPL.
BNPL is credit and like other credit products should be regulated under the National Credit Code. The exact form of that regulation however needs to be determined. This type of investigation is exactly what both the UK and New Zealand governments are currently doing in relation to BNPL in their jurisdictions.
“We are therefore 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. Undertaking that review should be a priority,” said Ms Guthrie.
248 financial counsellors responded to the survey, from approximately 950 financial counsellors nationally. That’s a response rate of 25%.
Financial counsellors work in community-based organisations. They offer free and confidential advice to help people in financial hardship get back in control of their finances.
They are different to financial planners and advisors. Financial counsellors do not offer wealth creation strategies or lend money.
The full report can be found here.
Order of talent is:
- Jackie – A client who used BNPL for urgent dental work and is now owes more than $2000.00 she cannot afford. She is on a disability pension.
- Fiona Guthrie – The CEO of Financial Counselling Australia
- Deb Shroot – A financial counsellor with the National Debt Helpline.
The State/Territory Executive Officers are also available for comment:
Executive Officer of Financial Counselling Victoria, Dr Sandy Ross – 0417 557 420
Executive Officer of Financial Counsellors Association of Western Australia, Melanie Every – 0406 740 197
Executive Officer of South Australian Financial Counsellors Association, Kate Fox – 0423 085 432
Executive Officer of Financial Counsellors Association of NSW, Jo Parker – 0466 351 400
Executive Officer of Financial Counsellors Association of Queensland, Jon O’Mally – 0429 061 269