‘Fast Path to Extreme Financial Hardship’: Consumer Groups Call for Buy Now, Pay Later Regulation

Afterpay logo is displayed in this illustration taken, Aug. 2, 2021. Dado Ruvic/ Reuters /Illustration

A group of international consumer groups across 10 countries, including Australia, New Zealand, and the United States, are calling for the urgent regulation of the Buy Now, Pay Later (BNPL) sector.

Australian consumer advocacy group CHOICE said new data showed that many Australians were struggling with debt from BNPL.

“We are calling for governments across the world—including the Australian Government—to ensure that buy now, pay later providers are subject to the same consumer protection laws as other credit providers,” CHOICE CEO Alan Kirkland said in a statement.

Newly released data from CHOICE found that 30 percent of Australians have used a BNPL service in the last 12 months. Of those people, over one-in-five have used the service to pay for essential goods and services, such as groceries or utilities.

“Buy now, pay later credit providers are known for targeting people with existing loans, encouraging them to use buy now, pay later loans to pay for essential goods and services, such as food, electricity bills, and rent,” Kirkland said.

“This is a fast path to extreme financial hardship.”

CHOICE noted that new BNPL providers were moving into targeting payments for essential services, such as childcare and rent.

“Australia already has some of the highest household debt in the world,” CHOICE senior policy advisor Patrick Veyret said. “Allowing the rapid expansion of unregulated debt is a serious cause for concern, for both individuals, households and the broader economy.”

The data also revealed that 15 percent of BNPL users have missed or been late on a payment. Of these users, 78 percent have, because of BNPL fees, experienced financial hardship, including taking out additional loans.

PayPal launched it's own buy now, pay later service in Australia on March 10, 2021. PayPal

Kirkland said it was critical to close the loophole in the laws to ensure businesses can’t create debt traps by providing credit that “looks easy but is ultimately unaffordable.”

“It’s time to close the loophole in the buy now, pay later industry in Australia. For too long, companies have been allowed to sell unregulated loans to Australians,” Kirkland said.

The global statement (pdf) has six key asks for government and financial service authorities, including the regulation of BNPL products in the same way as other forms of credit, including measures such as caps on fees and charges.

It also calls for the obligation of BNPL providers to make assessments for whether it is suitable to provide credit to certain people without the risk of causing financial harm.

Global consumer advocacy groups are also concerned that BNPL could encourage people to buy more than they originally intended, leading to over-consumption.

CHOICE also warns BNPL users that banks could consider the use of BNPL when it comes to checking a person’s ability to repay debts when applying for a home loan.

Commonwealth Bank, National Australia Bank, and Westpac told CHOICE that all debts are considered when assessing home loan applications, including BNPL use.

Meanwhile, BNPL provider Afterpay states on its website that its service “cannot affect what’s known as your ‘credit score,’ which can determine your ability to get a home loan.