Only a few years ago, Buy Now Pay Later was hailed as the ultimate in consumer credit innovation. The current reality is massive losses for the providers while cost-of-living pressures escalate and the most vulnerable consumers suffer most. Welfare groups are demanding regulation, David Gilchrist reports.
Government inaction on Buy Now Pay Later (BNPL) credit regulation risks increasing rates of family violence as cost-of-living pressures escalate, according to a prominent public welfare charity.
Good Shepherd Director, Research, Advocacy and System Impact, Dr Ros Russell, said that without significantly increased regulation, BNPL is harmful. “Rising interest rates mean vulnerable consumers will struggle to pay outstanding BNPL debt when lower-income mortgage holders and renters are already experiencing higher mortgage costs and increasing rents.”
BNPL providers like Afterpay argue for minimal change to regulation saying that the low-risk nature of the product means that the potential for consumer harm with these products is very limited. They contend that BNPL should not be subject to the same regulation as other forms of credit as they provide small loans to low number of consumers that generate few complaints.
Australian Retail Credit Association (ARCA) General Manager of Policy and Advocacy, Michael Blyth, disagrees. He said that “several small accounts over a number of providers can quickly add up,
BNPL providers should participate in the credit reporting system so regulators, advocates, and the public have a better understanding of how the sector is operating.
ARCA research shows the problem of providing easy access, low regulation credit through BNPL is significant. The data shows almost half (49%) of Australians have used BNPL credit and almost one in eight are using it several times a week, while over a third (34%) of Australians who use BNPL are behind on their payments.
Consequently, ARCA insists BNPL credit should be regulated in the same way as other forms of credit under the regulatory frameworks set out in the National Consumer Credit Protection Act and the Australian Securities and Investments Commission’s National Credit Code.
Michael Blyth also refutes the claims that BNPL transactions are small. He said BNPL transactions can be as high as $30-40,000.
BNPL complaints and abuse surging
The Australian Financial Complaints Authority (AFCA) confirmed that BNPL activity generated 1,064 complaints in 2021-22, up by 39% on the previous year, while overall complaints rose by 1%.
Good Shepard’s Dr Russell said “BNPL prolongs and deepens financial hardship. Unaffordable debt is not the answer to the financial hardship caused by low incomes, impoverishing income support payments, under-funded public services such as health, and the financial impacts of family violence.”
After almost a decade of BNPL in Australia, Dr Ros Russell said while it introduced quicker and easier consumer credit, it also increased ‘abusive BNPL.’
Dr Russell said, “abusive BNPL debt is a form of financial abuse, where the perpetrator coerces the woman into taking on crushing BNPL debt, or fraudulently takes out the debt in her name.
The unregulated, frictionless, online, often phone-based nature of BNPL access makes the product ripe for abuse.
Good Shepard has seen a strong link between family violence and BNPL use among its clients. The charity said 53% of practitioners report seeing abusive BNPL debt more than they did a year ago. “Sadly, the national research is consistent with what we are seeing among our clients – unmanageable BNPL debt is eroding the safety of women experiencing violence and is interfering with their recovery.”
Dr Russell added that women fleeing violence are typically accumulating unmanageable BNPL debts to pay for basics like food or electricity bills.
Public Interest Advocacy Centre’s Senior Policy Officer, Thea Bray, confirmed Australian’s are using BNPL to pay power bills rather than turning to electricity retailers for bill assistance. She said using BNPL fees effectively increased their electricity bills. “Our research showed BNPL marketing creates a positive feeling around products that provide short term help to consumers but are bad products for those struggling with the cost of living.”
Regulatory changes long overdue
The Albanese Government produced an options paper in November 2022 that called for public submissions by December 2022. Treasury proposed three options that varied in the extent of the credit checks that will be required of BNPL providers like Afterpay. Yet there is no date for implementation of a new regulation regime.
Good Shepard is calling for urgent and comprehensive regulation. According to Dr Russell,
Increases in unaffordable and unsustainable debt, due to a lack of appropriate BNPL/credit regulation, risks Australia’s financial stability and puts the wider economy, and jobs, in jeopardy.
In November 2022, Reuters reported that regulation might arrive as the appeal of the industry fades. In March 2023 Openpay became the first ASX-listed buy now, pay later group to call in administrators, and others in the sector have had large falls in value.
BNPL giant Klarna has recorded a massive operating loss of $A1.4 billion, Zip recently revealed its losses have blown out to $240 million. In February, lender LatitudePay said they will pull out of the sector in April.
Nonetheless, Dr Ros Russell said these results should not allow the sector to avoid increased regulation. “Financial hardship [for the providers] should not be the price of growth in the BNPL sector.”
David Gilchrist has worked for over two decades as a journalist, documentary filmmaker and author. He has written for a variety of publications including The Independent in London, Australian Geographic, Outthere and The Australian Newspaper, The West Australian, Sydney Morning Herald, The Age, The Canberra Times and The New Zealand Herald.