New report shows buy now pay later debt is causing significant financial stress

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.

This is a media release from Financial Counselling Australia . It was originally published on 6th December, 2021.

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.

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