The number of Australians approaching financial advisers to buy now, pay off debt has skyrocketed in the past year, a new report says, as advocates call for tighter regulation and legislative oversight to protect them. vulnerable users.
On Monday, Financial Counseling Australia (FCA) revealed that 84% of counselors in a September survey said half or more of their clients had BNPL debt. That figure was only 31% a year earlier, the FCA said.
Some 61% of those polled said BNPL’s indebted clients struggle to pay other living expenses, including food, bills and rent.
The survey also found that many hard-hit Australians are prioritizing their BNPL refunds over other necessities in order to keep service active.
These results reflect a 2020 report from the Australian Securities and Investments Commission, which found that around one in five BNPL users chose to pay off their BNPL balances before directly purchasing essentials like food.
But that doesn’t mean that users burden their BNPL accounts with discretionary purchases at the expense of their daily needs.
FCA said a significant portion of users have now become dependent on BNPL services to pay for their daily essentials.
Some users stuck in the cycle have now become “over-engaged” in the industry, opening accounts with multiple competing services to keep food on the table.
The organization said the way BNPL services are structured and the fact that they can negatively impact a user’s credit rating means they should be regulated like traditional credit products under the National credit code.
Because they charge fees and not interest, BNPL providers are currently not subject to this legislation.
Instead, the major BNPLs, including Afterpay, Zip, and Humm, self-regulate under a code set and enforced by the financial industry itself.
This means that BNPL services are not required to perform the same credit checks as banks and other traditional lenders, a move that critics say can expose vulnerable users to debt they would not otherwise be allowed. to contract.
Many users are not even aware that BNPL repayments are considered a form of debt, according to the report.
“We therefore call on the Australian government to commission an independent review of the existing legislation.
framework, with a view to developing a suitable regulatory response, which will make BNPL safer for all users, ”FCA said.
“Undertaking this review should be a priority. “
A joint parliamentary committee on mobile payment and digital wallet financial services has already called for an official inquiry into the industry and its self-imposed code of conduct to “investigate consumer protection issues.”
But the industry has long championed itself as a safer alternative to credit cards, which can expose users to tens of thousands of dollars in debt, as opposed to the smaller individual limits set by most BNPL providers.
The industry has also rallied around internal credit checking systems. In 2020, Afterpay co-founder and co-CEO Anthony Eisen said traditional credit checks “often provide an incomplete picture of a customer.”
The report also fired shots at the emerging wave of pay-on-demand services, which offer salary advances through similar interfaces.
“Payroll advance products are becoming more and more common and causing harm to some people,” FCA said.
“Although separate from BNPL, they use the same loophole in the law to offer products without secure lending practices. “