BNPL companies

Buy now, pay later (BNPL) services have become increasingly popular in Australia in recent years.

There are now over 6 million users of these services, and the number is growing rapidly.

However, there are concerns that these schemes may not be adequately regulated, and that borrowers may not be fully protected from the risks associated with taking out a loan.

Here are three reasons why the government is right to be wary of buy now, pay later services:

1. Inferior Consumer Protections

When compared to other credit products, BNPL schemes offer inferior consumer protections. For example, many schemes do not require a credit check before approving a loan, which could lead to borrowers taking on more debt than they can afford to repay. Additionally, many schemes do not have clear guidelines about late fees or other penalties, which could leave borrowers with unexpected costs.

2. Potential for Harmful Debt spirals

The Australian Securities and Investments Commission recently reported that one in four BNPL users have missed a payment in the last 12 months. This is concerning because late payments can trigger a debt spiral, where the borrower takes on more debt to cover the cost of the original loan plus interest and fees. This can quickly become unmanageable, leading to financial hardship.

3. Lack of Regulation

Unlike other credit products, BNPL schemes are not currently regulated by the Australian Securities and Investments Commission (ASIC). This means that there are no guidelines in place to protect consumers from harmful practices. ASIC has expressed concerns about this lack of regulation and has called for greater scrutiny of these schemes.

With more and more Australians falling into debt, the government is taking a closer look at BNPL schemes.

The Regulating Buy Now, Pay Later in Australia consultation paper highlights a number of potential risks associated with the use of BNPL services which the Treasury is seeking feedback on.
If you are considering using a BNPL service, it is important that you are aware of these risks so that you can make an informed decision about whether the service is right for you.

Some of the risks associated with buy now, pay later schemes include:

They can tempt you to overspend: When you know that you don’t have to pay for something immediately, it’s easy to convince yourself that you can afford it. This can lead to impulse purchases that you may not be able to afford when the bill comes due. This can leave you with financial stress and debt that is difficult to repay.

You may end up paying more in fees: Many BNPL schemes come with high missed-payment fees. This means that if you’re not able to pay off your purchase in full when the bill comes due, you could end up paying significantly more than the original purchase price. This could leave you in a cycle of debt if you cannot afford to make the minimum repayments on your account. In addition, missed payments may be recorded on your credit report which could damage your credit score.

They can damage your credit score: If you miss a payment or make a late payment on BNPL scheme, it will likely show up on your credit report. Additionally, opening multiple BNPL accounts can also have a negative impact on your credit score as it may appear that you are relying too heavily on debt to finance your purchases. This can damage your credit score and make it more difficult to borrow money in the future.

You may be tempted to use them for larger purchases: While BNPL schemes are often advertised as being ideal for small purchases, you may be tempted to use them for larger items. This can put you in a difficult financial situation if you’re not able to make the payments when they’re due.

You may have difficulty cancelling the service: Once you’ve signed up for a BNPL scheme, you may find it difficult to cancel the service. This could result in additional fees or charges being applied to your account.

What’s next for Buy Now, Pay Later services if they’re held to a higher standard?

The government’s announcement of a review into the BNPL industry is likely to result in greater regulation of these services. This could mean that fees and charges are capped or that stricter eligibility criteria are put in place for borrowers.

Increasing regulations could lead to higher fees for consumers.
If the government increase regulation on BNPL services, one likely outcome is that fees for consumers will go up. This is because BNPL providers will need to find ways to offset the costs of complying with new regulations. For example, if regulators impose a cap on late fees, BNPL providers may try to make up for it by raising annual fees. This would make BNPL less attractive for consumers, who are already facing high levels of debt and financial stress.

BNPL providers may need to change their business models to stay afloat.
Another result of increased regulation could be that BNPL providers will need to change their business models in order to stay afloat. This could mean introducing new fees, such as an annual fee or service charge, or changing the way interest is calculated on outstanding balances. It could also mean partnering with banks or other financial institutions in order to access cheaper funding sources. Whatever changes they make, it’s likely that they will be passed on to consumers in the form of higher prices.

Some BNPL providers may exit the market altogether.
Finally, it’s possible that some BNPL providers will exit the market altogether if regulations become too onerous. This would reduce competition and leave fewer options for consumers who are looking for alternative financing products. It’s also possible that we will see consolidation in the industry, with larger players acquiring smaller ones in order to survive.

Battling BNPL Debt? Here Are some Tips to Help You Get Back on Track

If you’re like many Australians, you may have taken advantage of BNPL services to help you manage your finances. While these services can be helpful in the short term, they can also become a problem if you’re not careful. If you’re struggling with BNPL debt, there are several things you can do to get back on track.

Understand Your Options: One of the first things you need to do if you’re struggling with BNPL debt is to understand your options. Do you have enough money in your savings account to pay off the debt in full? If not, could you afford to make larger monthly repayments in order to pay off the debt sooner? Would consolidating your debt into a personal loan with a lower interest rate help you save money in the long run? There’s no one-size-fits-all solution when it comes to dealing with debt, so it’s important to understand all of your options before making a decision.

Talk to your BNPL provider: Your first step should be to reach out to your BNPL provider and explain your situation. Many providers are willing to work with customers who are struggling to make their payments. They may be able to offer you a hardship payment plan or another type of assistance.

Create a Budget: If you’re struggling to make ends meet, it’s time to create a budget. Start by tracking all of your income and expenses for one month. This will give you a good idea of where your money is going and where you could potentially cut back. Once you’ve created your budget, stick to it as closely as possible. This may require making some lifestyle changes, but it will be worth it in the long run.

Prioritise your debts: Once you’ve created a budget, you can start prioritising your debts. Make sure you keep up with any essential bills, such as rent or mortgage payments, and put any extra money towards paying off your BNPL debt.

Seek professional help: If you’re feeling overwhelmed by debt, it may be time to seek professional help from a financial counsellor or planner. They can provide guidance and support as you work towards getting back on track financially.

The future of Buy Now, Pay Later services in Australia is uncertain, but one thing is clear: if the government increases regulation on these services, it’s going to have an impact on both providers and consumers alike.
Higher fees, changes to business models, and even exit from the market altogether are all possible outcomes of increased regulation.

So what does this mean for you?

If you’re thinking about using a BNPL service, it’s important to do your research and compare different providers before you commit to anything – because the landscape is likely to change in the coming months and years ahead.

Tighter new credit card rules mean that providers must strictly assess card applications… which could come to impact mortgages down the track.

A blank white card on a green background.

Credit Card Rules: What’s Changed?

In the past, credit card contracts were assessed as unsuitable if the applicant couldn’t repay the minimum monthly repayment for that limit. Under the new rules, credit card providers must assess whether the applicant can repay the entire credit card limit within three years.

If a credit card applicant cannot repay the full credit limit in three years, it’s assumed that they will be in substantial hardship. This is because a consumer who cannot afford to repay the limit within three years will probably pay a staggering amount of interest that will take an extraordinarily long time to repay. If the applicant is in substantial hardship, the credit card provider must decline the application as being unsuitable.

Other Lenders and Brokers May Be Affected

Man typing in his credit card details on a laptop.

Technically, this new rule doesn’t apply to other lenders or brokers; even when they’re assessing an application from a borrower who holds a credit card. This means that when assessing the suitability of a mortgage or a car loan, the credit licensee can assume that only the minimum monthly repayment will be made on the credit card.

But all lenders and brokers have an obligation to reject a credit contract if it would place the consumer into substantial hardship.

If the inability to repay a credit card within three years is considered to be a substantial hardship when assessing a credit card application… how can it also not be substantial hardship when a consumer is no longer able to repay their credit card within three years, because they’re meeting new repayment obligations on a car or home loan?

These Two Scenarios Highlight the Common Problem…

credit card rules

In scenario 1, an applicant with a $500,000 mortgage applies for a $15,000 credit card. When assessing the credit card, the provider determines that the applicant is unsuitable because they won’t have enough income to repay their credit card limit in full within three years. So, the credit card provider declines the application.

In scenario 2, the same applicant already has a $15,000 credit card and then applies for a $500,000 mortgage (on identical terms as in the first scenario). The licensee is only required to consider whether the applicant can make the minimum monthly repayment on their credit card when determining if they will suffer substantial hardship. On this basis, the licensee approves the mortgage.

The end result for the applicant is the same in both scenarios. They have a $500,000 mortgage and a $15,000 credit card limit. So, how can we say that they are in substantial hardship in one scenario, but not in the other? It’s an absurd outcome that the same person could be approved or declined for a credit product… just because they applied for them in a particular order.

Regulation Shifting the Credit Landscape

Over time, the courts and AFCA may seek to align the obligations of all credit providers and brokers. In the meantime, ASIC has said it expects all credit licensees to apply the rule to existing credit cards by 1 July 2019.

This means that credit providers and brokers should consider the implications of this situation when determining how they will assess a credit card holder’s capacity to pay, and whether they are in substantial hardship, for other loan applications.

Two computer screens with hands coming out of them exchanging purchases for credit card information.

Less Debt More Life™

You work hard for your money – imagine your peace of mind knowing your money is working hard for you. Our Mortgage Action Plan delivers guaranteed results and allows you to start living the life you deserve.


Join our Facebook Community

To learn how everyday Australians are ‘beating the banks’ by eliminating debts and achieving financial independence.