A Youth Allowance recipient had $8000 in BNPL debt. More than 100 organisations say it’s time to regulate

Fiona Guthrie has personally witnessed the damage buy now, pay later (BNPL) products can do to the lives of Australians, from strangling their finances to causing devastating mental and physical health outcomes, and it’s only getting worse as the cost of living surges.

Guthrie, the CEO of Financial Counselling Australia, says the unregulated BNPL industry — which allows customers to purchase an item and pay it off in equal instalments — and its little sister, wage advance services — which pay salaries ahead of a person’s actual payday with a fee of about 5% — are dangerous.

Both financial products use a loophole in Australia’s credit laws to bypass basic consumer protections – like assessing someone’s ability to repay or hardship processes — meaning customers can receive loans of up to $30,000 without basic checks.

And it can get them into hot water fast. ASIC says that one in five people with BNPL debts has cut back on essentials to make their repayments by the due date.

“We see first-hand the harm of unregulated BNPL and wage advance in our community … We know these products cause harm. BNPL is credit and should be regulated like other credit products,” Guthrie said.

Financial Counselling Australia is one of more than 100 signatories that penned an open letter to whoever wins the federal election to urge policymakers to reign in the emerging industry.

BNPL accounts for about a fifth, or some 20%, of all online retail transactions, and there were 5 million active customers as of last June. But a young person who was on Youth Allowance ($522 a fortnight) recently sought out a financial counsellor with multiple BNPL debts totalling $8000.

Anglicare Australia’s executive director Kasy Chambers says Australia’s laws haven’t kept up with the nouveau credit products and unregulated lenders are “taking advantage of the gap”.

“Anglicare Australia and our members are seeing first-hand the harm this is doing to people who are being preyed on and getting trapped in debt.

“As more people struggle with the cost of living, too many are turning to these products to get by.”

The open letter was also signed off by CHOICE, Financial Rights Legal Centre, and the Consumer Action Law Centre, and has been endorsed by a wide range of community groups, including the Australian Council of Social Service (ACOSS), St Vincent de Paul, Youth Action, The Salvation Army, UnitingCare Australia, Wesley Mission, Tenants’ Union of NSW, and Good Shepherd Australia.

It reads: “Together our organisation support and advocate for hundreds of thousands of people across Australia. Some of our services include emergency relief, financial counselling, legal advice and advocacy and support.

“… The commitments in the current, voluntary, industry code are woefully inadequate. it doesn’t cover wage advance, is not properly enforced, and only eight out of more than 16 BNPL companies have signed up to it.”

The letter ends by calling for greater consumer protections for the credit products and suggests an independent inquiry to inform new regulatory protections, based on a similar UK inquiry last year which found that the sector represented a “significant potential consumer harm”.

“Without greater consumer protections, these credit products will continue to cause unnecessary harm and have long-term consequences for people, families and communities,” the open letter concludes.