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Financial counsellors warn battlers in hot water resorting to buy-now, pay-later to feed families

Financial counsellors and consumer lawyers warn of a new wave of distressed consumers racking up buy-now, pay-later debts to feed their families. The consumer advocates warn it is not only renters resorting to this easily available credit, home buyers are using their pay packets to maintain mortgage payments and resorting to buy-now, pay-later for essentials. This includes the widespread use of deferred payment schemes to buy supermarket gift cards to buy groceries, as well as essentials like school shoes and stationery for their children. The desperate moves come as Australians battle with soaring rents, higher interest rates, skyrocketing insurance bills and food price inflation in the wake of the COVID-19 pandemic. “More and more people are using it for essentials and having multiple buy-now, pay-later debts,” said Consumer Credit Legal Service WA chief executive Bev Jowle. “There has to be something wrong with an economy where you are using that form of credit to eat.“ The Reserve Bank reported in November that more than 40 per cent of people aged 18 to 39 had used BNPL services over the previous 12 months, while around 32 per cent of people aged in their forties had used the service. The proportion of people aged 50 to 64 using BNPL had more than doubled to 28 per cent since 2019, while the penetration among people aged 65 had to also more than doubled to 10 per cent of seniors. The grocery major retailers do not offer buy-now, pay-later arrangements at their check-outs. But they have both have various indirect means by which customers can sign up for these deferred payment schemes. Coles and Woolworths gift cards are sold through Zip and Afterpay, while Woolworths grocery, liquor, fuel and Big W cards can also be bought through PayPal. Research group Pymnts said that while some Australia were using the services for luxury items, many were now treating it “as a vital financial management tool”. “This includes spending on essentials such as groceries and to tide them over until they receive their next paycheck,” it said. Financial Counsellors’ Association WA quality and development manager Leanne Berard said an increasing number of people “were becoming dependent on buy-now, pay-later as a means of getting by”. Ms Berard said the lack of credit checks and controls with buy-now, pay-later meant people were getting themselves into financial difficulty by signing up for a series of deals through retailers and online offerings. “You can just keep getting more and more,” she said. “That becomes an issue when you have racked up so much that you can’t make the payments.” Buy-now, pay-later generally are interest free and can be attractive for people who manage their money well. Retails pay the lender up-front for providing the deferred payment, but customers can rack up big fees and charges when they default on various payment plans Woolworths cards linked to PayPal’s Pay in 4 process boasts no late payment fees. Like Afterpay, Pay in 4 requires three fortnightly payments after the customers hands over 25 per cent of the purchase price upfront. Zip requires no payment upfront, allows three months for repayments but charges a monthly fee of $9.95. Debt collectors are called in to recover money if payments are overdue, usually resulting in damage to a person’s credit rating. Defaults on Afterpay and Zip can also trigger big fees. Outgoing National Australia Bank chief executive Ross McEwan last week questioned whether the regulation of banks was pushing people to payday lenders and buy-now, pay-later services. “Is this what we really as a society wanted when we put all this wonderful regulation and that was supposed to save people,” said Mr McEwan, who became NAB chief executive banks faced a crackdown after the Hayne Royal Commission. While praising the efforts of bigger banks to improve their work with mortgage customers facing financial difficulties, consumer groups disputed whether tighter banking regulation was creating the gap for buy-now, pay-later and payday lenders. Ms Jowle said banks had clearly lowered their risk appetites in recent years. She said people facing financial difficulty were prioritising their bank repayments and going to the unregulated buy-now, pay-later sector for daily essentials. But they were being caught by offerings such as instant top-ups, providing extra funds for groceries and maybe some toys for the children. “They’re not using it to their buy shoes and clothes — they’re using it to survive,” Ms Jowle said. “We are seeing people getting into trouble with it.” Financial counsellors suggest that people who went to payday lenders were already in trouble. Payday lenders usually charged a 20 per cent upfront fees and monthly interest rates of 4 per cent. Choice policy chief Tom Abourizk said Mr McEwan’s suggestion that tighter bank rules had led to a rise in payday loans did not stack up because these lenders faced the same credit laws as banks for similar services. Mr Abourizk said the ease at which people could be approved for buy-now, pay-later arrangements was a problem that urgently “needed fixing”. “Banks only wade into regulation debates when they see a way to improve their profits,” he said. “If banks were truly concerned about consumer outcomes, they could have offered more viable alternatives by reducing the extremely high interest rates on their competing products like credit cards.”

The West Australian exclusiveFinancial counsellors warn battlers in hot water resorting to buy-now, pay-later to feed families

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Financial counsellors warn battlers in hot water resorting to buy-now, pay-later to feed families