Experts warn of a growing trend in consumers using wage advance apps,which allow people to access their pay early through short-term loans,to fund repayments of buy now,pay later (BNPL) debts and mounting late fees.
Financial Counselling Australia’s Shae Robbins said rising numbers of Australians were finding themselves in deep financial stress after using BNPL services.Simon Schluter
Other shoppers are taking out multiple BNPL accounts and racking up additional debt,as Financial Counselling Australia data reveals escalating demand for help.
Consumer Action Law Centre chief executive Stephanie Tonkin said there was a concerning rise in people signing up to wage advance providers such as Wagetap,Beforepay and MyPayNow,which offer consumers an advance on their pay packet,which they automatically repay along with a fee when their pay arrives.
Some consumers used their entire pay on BNPL debts,she said.
“This is what we’re calling a debt spiral because your money is not even coming into your account,it’s going straight out again,” Tonkin said. “They have no money because their money is just deducted automatically out of their account.”
Australians are accessing their savings to cover their daily expenses,according to a Reserve Bank analysis.
Some BNPL accounts offer up to $30,000 in credit,with no checks in place to determine if a person can afford it,Tonkin said.
“It’s just crazy,” she said. “It’s really problematic because people are finding these products and taking out multiple accounts regardless of whether they can afford it.”
Calls to the national debt crisis hotline rose by nearly 30 per cent compared to the same period last year,it said.
Demand for help was highest in Victoria,with a 33 per cent increase in calls. Almost 8300 people in the state called the helpline in the three months to April 2,up from about 5400 for the same period last year.
Calls in NSW increased by28.5 per cent to almost 8900,up from 6938 last year.
Visits to the service’s financial counsellors increased by almost 30 per cent,with more than 117,000 people in financial distress seeking support,up from about 91,000.
Financial counsellor Shae Robbins said many Australians found themselves in deep financial stress after using BNPL services to buy grocery vouchers,pay utility bills and buy fuel as they struggled to meet rent or mortgage repayments.
BNPL services could lull users into thinking they can take on more debt with no consequences,she said.
“It’s very alluring for many people,and it’s a trap,” Robbins said. “People don’t realise that even though it’s not charging them interest,it’s still charging them fees,and they have to pay it all back.”
Use of BNPL services for essentials basics such food has exploded in the past two years.
There are worrying signs that use of these services for repeated,everyday expenses like groceries was pushing some younger people,or those who are already overextended,further into debt.
“People want to keep a roof over their head and keep their lights on,” she said. “They’d rather pay for that than feed themselves and then they are scrounging to find ways of getting food.”
Robbins said her clients came from all demographics and ages,but those with lower incomes,young people and single parents,were overrepresented.
Gippsland single father of three,Sam,who is on a disability pension and did not want his surname published for privacy reasons,began using BNPL for Coles gift cards during the pandemic and quickly racked up more than $4000 in debt. He continues to be stung by late fees.
“As soon as I maxed it out they would give me another thousand dollars credit and then another,” he said. “Everything was more expensive because before the pandemic I would usually only buy whatever was on sale at the supermarket ... it got out of hand so quickly.”
In a few short years,financial-technology firms such as Affirm,Afterpay,and Zip,which allow consumers to pay for purchases over several interest-free instalments,have gained a foothold in Australia,buoyed by inflation and the rise in e-commerce.
One in seven users of credit from buy-now-pay-later providers had more than 20 loans last year,according to data from consumer group Choice. One in five had been late with a payment and rising numbers of people were trying to take out more loans to pay BNPL late fees or debts.
BNPL is experiencing a meteoric rise in Australia,with the number of accounts growing from 5 million to 7 million last year,mostly held by people aged 18 to 34,amounting to $16 billion in transactions,an increase of 37 per cent from the previous financial year.
Consumer groups,including the Consumer Action Law Centre,are demanding BNPL be regulated in the same way as credit card providers.
The Australian government is consulting on regulation for the BNPL sector,which falls outside credit laws.
Several submissions,urged the strictest model for regulation. This would include subjecting those operators to full responsible lending checks under the National Consumer Credit Protection Act.
Tonkin also wants the government to introduce caps on BNPL late fees and charges,ban BNPL debt being paid off with a credit card and stop BNPL providers from aggressively advertising their products in-store.
In Australia,Afterpay customers have an initial spending limit of $600 without needing a credit check.
Soaring numbers of Australians are resorting to buy now,pay later services for essentials such as food,bills and fuel,as consumer experts warn of a troubling emerging trend in Australians having their entire wages deducted to pay back spiralling debts.
Some BNPL services,including Afterpay,have also voiced support for stronger regulation of the sector.
If you are worried about the debt call the National Debt Helpline 1800 007 007.
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