Calls for buy now, pay later regulation amid spiralling customer debt

The surging popularity of buy now, pay later services has welfare and consumer groups calling for regulation in the industry.

They want the new federal government to enact new rules, to protect customers from spiralling into debt.

"I absolutely think that these products are very predatory," Deb Shroot from Financial Counselling Australia told A Current Affair.

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"There are even some buy now, pay later products that customise themselves to aim for people who need to pay their rent, or their bill, or food."

The scheme is essentially an instant line of credit which runs zero credit checks and takes little time for customers, but Financial Counselling Australia is trying to have that changed.

The organisation is part of a coalition of charities and financial care providers who are calling on a federal-level crackdown on these unregulated credit products it claims are causing harm.

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"It might seem like $20 fortnightly repayment isn't much, but when you add them up over the multiple debts that people have, it becomes unsustainable," Shroot said.

The payment schemes, which were non-existent a decade ago, were originally brought in as a modern-day instant layby for clothes and gifts.

But now it can be used on just about anything – up to $30,000 – with major retailers, beauty and cosmetic treatments and services and travel, moving into the space as well.

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There are now more than six million customer accounts and more than half of those are under the age of 40.

"We have clients calling us who have seven, eight, nine of these products across numerous different companies," Shroot said.

Buy now, pay later schemes aren't currently covered by the National Credit Code, which means providers aren't legally required to check a customer's ability to repay debts, or offer adequate hardship support.

"This regulation has become very, very urgent. Australians deserve the consumer protection, the base product, as they would get (with) any other credit product," Shroot said.

"I think any regulation over financial products is important but I also think there's a level of consumer responsibility required here as well," consumer expert Gary Mortimer said.

He warned consumers using the scheme can get into "some strife pretty quickly" if they're not using the service responsibly, or if payments are missed.

Research done by Australia's corporate regulator ASIC in 2020 found one in five people who used buy now pay later schemes missed a payment and cut back or went without essential items like food to pay the debt. Fifteen per cent took out other loans to cover buy now pay later instalments.

Former Afterpay customer Aingel said she closed down her account after realising she was spending well beyond what she had.

"Lots of little amounts add up and suddenly you're like, 'where did my pay go?'." Aingel said, while adding she found the payment scheme "addictive".

Jonathan, who is not a customer himself, said he's seen his friends who were customers fall victim to mounting late fees.

"I have heard from friends that they have had bad experiences unfortunately and resulting in them not being able to pay back the remainder," he said.

"I think it is a pure debt trap."

If you've found yourself in trouble, the National Debt Helpline offers free counselling and assistance.

For more information, visit here.