Friday, July 26, 2024

Global alliance calls for BNPL regulation

Global alliance consumer groups from 9 countries are calling for urgent action on buy now, pay later (BNPL) credit providers as new data shows many Australians are struggling with this form of debt.

The global statement released by Consumers International is supported by 11 consumer organisations from 9 countries.

Alan Kirkland, CEO of CHOICE, one of the signatories, says the international statement shows how much damage these unregulated financial products are causing across a number of countries.

“International consumer groups have sounded the alarm on the harm being caused by the unfettered BNPL industry,” he said.

“We are calling for governments across the world – including the Australian Government – to ensure that BNPL providers are subject to the same consumer protection laws as other credit providers.”

Many Australians face financial hardship

The global statement comes as this week CHOICE released new nationally representative data that found:

  • 30% of Australians have used a buy now, pay later service in the past 12 months
  • 21% of people who have used a buy now, pay later loan in the past 12 months have used it to pay for essential goods and services, such as food, groceries, or utilities
  • 15% of buy now, pay-later users have missed or been late on a payment.
  • 78% of people who have missed or been late on a payment have experienced financial hardship as a result of buy now, pay later fees, including taking out an additional loan or foregoing household essentials.

Mr Kirkland says financial counsellors have reported an increase in people with multiple loans from different BNPL companies.

“Buy now, pay later credit providers are known for targeting people with existing loans, encouraging them to use BNPL loans to pay for essential goods and services, such as food, electricity bills, and rent,” he said. “This is a fast path to extreme financial hardship.”

Need to address loopholes

According to CHOICE, 87% of Australians agree that BNPL companies should have to check someone’s capacity to repay a loan as part of the application process as credit cards are legally required to do.

“It is critical to fix this loophole in our laws, to ensure these businesses can’t create debt traps for low-income households by providing credit that looks easy but is ultimately unaffordable,” he said. “In some cases, people spend years trying to pay back debt they have signed up for in minutes.”

The Global alliance Statement includes six key asks for effective regulation of BNPL:

  1. Regulate BNPL products in the same way as other forms of credit.
  2. Require merchants to provide an option that allows a consumer to pay for a product in full at the time of purchase.
  3. Obligate BNPL providers to assess whether it is suitable and affordable to provide credit to people, without risk of causing financial harm.
  4. Prohibit BNPL providers from marketing their products in ways that target children or people in financial hardship.
  5. Enable consumers to have access to redress through fair and independent mechanisms when something goes wrong.
  6. Ensure regulators monitor and report publicly on the impact of BNPL products for different groups of consumers.

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