Aussies caught in buy now, pay later ‘debt trap’ – World News

Aussies caught in buy now, pay later ‘debt trap’

Financial advisors are concerned that a particular payment method has caused a spiraling money problem, putting many Australians at risk.

Australians are unwilling to end their reliance on the likes of Afterpay, Zip and Humm, even though a growing number of people are now seeking help with the spiraling, pay off debt later.

Where once installment payment was associated with a garment and accessories, New research shows more and more people Turning to Shop Now, Pay Later (BNPL) to cover essentials like food, medicine and rent.

Financial advisors say this is a growing problem, with the turmoil of the COVID pandemic further embedding BNPL in people’s lives, where many rely on the system to survive.

A startling survey by Financial Counselors Australia reveals that there has been a sharp increase in people presenting with BNPL loans over the past 12 months, with 84 percent of counselors reporting that nearly half, most, or all of their clients have had some form of BNPL loan. form is reported.

A year ago this figure was 31 per cent.

In addition, a survey of 250 counselors shows that the ease of opening a BNPL account means consumers are getting over with multiple installment loans and increasing late fees on top of existing credit card and personal loan commitments.

The report renewed calls for better regulation and protection of vulnerable consumers, saying companies are “falling short” of their hardship support for those in financial struggle.

“Accessing BNPL credit is difficult at the beginning of the customer journey, but many clients and their advocates face significant challenges when trying to negotiate a hardship settlement,” the report said.

The study comes after Australians dropped an estimated $5.5bn on Black Friday and Cyber ​​Monday sales – about $1m a minute – and are now turning their attention to Christmas shopping.

But on top of discretionary retail, BNPLs are also being used to pay for essential expenses such as groceries, medical costs and utility bills, with many not seeing installment payments as a “loan” as they do for a living. struggle to meet the cost.

BNPL is also working in many sectors including food & hospitality, hospital & health care and childcare.

Afterpay and Zip are the main BNPL players in Australia, while the increasingly crowded fintech space also includes Hum and Bundle, Latitude, Splitit, Klarna, Bright, Labeau, OpenPay and Perite.

While some financial advisors say that BNPL may be a useful product for a group of consumers, the point is that without adequate safeguards it can easily harm others.

For example, the Commonwealth Bank said in a parliamentary inquiry last month that customers who make purchases now, pay off loans later in the 2021 financial year, are more likely to withdraw from their accounts.

However, a theme in the Financial Counselors Australia report is that many people do not want to lose access to the product and would prefer the payment of BNPL loans over essential living expenses.

This, of course, only adds to the financial stress in the long term and has implications for other creditors.

Ultimately, when people find themselves unable to pay off their BNPL loans, they need to be able to get an appropriate hardship response from their provider, Financial Consulting Australia said.

“However, the reality is that both clients and financial advisors experience barriers to repayment difficulties with BNPL providers,” the report said.

The counselors are therefore calling on the government to conduct an independent review of the BNPL so that an appropriate-purpose regulatory response can be developed.

They say that BNPL is credit and should be treated like other credit products by the National Credit Code.

“However, given the different BNPL business models, the exact form of regulation needs to be determined,” the survey said.

“We note that both the UK and New Zealand governments are currently conducting similar reviews. Given the increase in BNPL, evidence from our survey and previous analysis by ASIC, a similar review in Australia should be given priority.”

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