Financial Counselling Australia calls for a review of BNPL

  • By Zilla Efrat

Financial Counselling Australia (FCA) has called on the government to commission an independent review of the existing legal framework for buy now pay later (BNPL) debt to make it safer for users.

This follows the release of a report yesterday by FCA and state and territory financial counselling associations that reveals that BNPL clients are experiencing financial stress because they have become overcommitted in using the product.

Indeed, 61 per cent of financial counsellors surveyed for the report said most or all their clients with BNPL debt are struggling to pay other living expenses.

“Financial counsellors are seeing people with multiple BNPL debts. They are really concerned that so many clients are using the product to cover essentials like food, medications and utility bills,” says Fiona Guthrie, CEO of FCA.

“This is very worrying, especially as we head into Christmas which is traditionally a time of heavy spending. BNPL could leave people with a financial hangover come January.”

FCA says new BNPL products are continuously coming onto the market and the sector will continue to grow. BNPL can be used for small purchases – 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 one’s home.

As the market grows, financial counsellors are seeing more clients facing BNPL debt.

Guthrie says 84 per cent of financial counsellors surveyed said that about half, most or all clients presented with BNPL debt. This compares to just 31 per cent a year ago.

The survey also found industry hardship practices are falling short. Clients and financial counsellors face significant challenges when addressing hardship with the companies that provide these products.

FCA says this is consistent with a report, released by the Australian Security and Investments Commission (ASIC) last year, which shows one in five BNPL users cut back or went without essential items, such as food, due to being overcommitted with BNPL.

Guthrie says BNPL is credit and like other credit products, it should be regulated under the National Credit Code. The exact form of that regulation, however, needs to be determined. Both the UK and New Zealand governments are currently holding investigations into BNPL in their jurisdictions.

“Undertaking that review should be a priority,” says Guthrie.

FCA says 248 financial counsellors responded to its survey, from around 950 financial counsellors nationally. That’s a response rate of 25 per cent.

Financial counsellors work in community-based organisations and offer free and confidential advice to help people in financial hardship get back in control of their finances. Unlike financial advisors, they don’t offer wealth creation strategies or lend money.