Buy Now Pay Later (BNPL) companies have recently attracted the ire of financial counsellors, mostly due to poor financial hardship procedures and a lack of oversight across the industry. A report into their practices, published by Financial Counselling Australia (FCA), was released early in December 2021. While the report raises valid criticisms, focusing solely on BNPL companies is to take our eyes off the ball.

According to FCA, the key takeaways are that BNPL services are under-regulated and overly-easy to access [1]. This has led to people quickly getting in over their heads and drawing down unaffordable levels of debt, with 84% of the financial counsellors interviewed for the report claiming a majority of their clients are burdened with BNPL obligations [1]. The solution, according to FCA is stronger regulation of the industry and for BNPL providers to improve their financial hardship procedures.

So far, so good. These findings mirror those of an investigation by consumer advocacy group Choice, which highlighted the fact that as the BNPL companies don’t charge interest, they have no obligation to comply with the National Credit Code (NCC) and instead subscribe to a voluntary code of conduct [2]. Not being subject to the NCC, BNPL companies do not need to carry out affordability checks, customers can open multiple accounts with multiple companies, and companies can raise customers’ credit limits unsolicited [1,2]. Although BNPL companies frame the latter practice as a reward for responsible account management, it is worth mentioning that it is illegal for banks and credit card companies to do the same [1,2].

Now, this is a good point to ask two questions:

1. Why are so many people spending money they don’t have at hand, can’t they just save up and buy later?
2. Why are they having trouble paying their debts, shouldn’t they simply buy fewer iPhones/TVs/Sneakers?

Starting with the second question, although BNPL services were initially pitched to the public as a slick way to finance phone upgrades and wardrobe updates, evidence points to more and more people using the services for more mundane things. Rather than living lives of luxury on Afterpay’s tab, people are using BNPL for things like groceries, utilities bills and even healthcare expenses like dental work [1,3]. When these accounts come due, customers then prioritse paying these debts in order to keep the facility available, either taking on more debt to cover the immediate costs [3], or by skipping on essential purchases [1,2].

Buried in that are hints towards an answer to the first question. The people who are spending all this money that they don’t have are people who, well, don’t have money. A lot of the people who reported hardship as a result of BNPL debts are those already in a precarious financial situation. They are likely on some form of welfare and using BNPL to cover shortfalls in their payments [1,2]. FCA also highlights that some of those having problems meeting their BNPL obligations lacked a general sense of financial literacy, some were incapable of making financial decisions due to intellectual disabilities, while others claimed to be misled by how the companies presented the services [1].

Yes, this does mean that part of the problem could be prevented by improving financial literacy. However, you can only accomplish so much by teaching people how to manage their finances, especially if they don’t have much finance to manage. On the other hand, it is also true, as advocates claim, that BNPL services can help improve people’s quality of life and that the situation is not entirely the companies’ fault.

One of the cruelest ironies of conservative fiscal policy is the repeated assertion that governments should budget like households and aim for surpluses, while at the same time creating conditions where households have to budget like governments. Successive governments have sought to stimulate the economy by offering tax breaks to big businesses and the wealthy on the premise that the increased revenues will eventually trickle into the workers’ pockets rather than, say, being siphoned off into savings accounts. As this reduces government income, the only way to ‘responsibly’ manage the economy back into surplus is by cutting government expenditure, reducing the budget for social services, cutting public sector wages and privatising assets.

Small wonder, then, that people are drawing down debt to pay for their groceries when a majority of Australian welfare payments fail to meet the poverty line [4]. Small wonder that people are unable to pay for necessities out of pocket, when the lower 50% of incomes have stagnated for a decade yet consumer prices have increased by 23% [5,6]. Small wonder that people are putting medical treatments on credit, when Medicare coverage excludes things like dental work for most Australians [7]. Rather than BNPL services being too accessible, although that certainly contributes to the problem, BNPL services are too necessary for many people.

The issue, then, is far greater than just an industry lacking oversight, and cannot simply be fixed by stronger regulations. In fact, turning off the tap overnight would likely cause harm, as those who currently rely on BNPL services to make ends meet won’t just disappear. This, however, is not enough to justify the existence of the BNPL industry, which at the end of the day performs no meaningful labour. What’s really needed is a sweeping reform to social and labour policy to ensure that people’s need for such services is minimised. Then, if people wish to deal with BNPL companies and other such middlemen they can make that choice willingly, free from financial duress.

1. FCA. It’s Credit, It’s Causing Harm and It Needs Better Safeguards: What Financial Counsellors Say About Buy Now Pay Later. https://www.financialcounsellingaustralia.org.au/docs/its-credit-its-causing-harm-and-it-needs-better-safeguards-what-financial-counsellors-say-about-buy-now-pay-later/ (2021).

2. Blakkarly, J. Does the buy now, pay later industry need tighter regulation? https://www.choice.com.au/money/credit-cards-and-loans/personal-loans/articles/does-buy-now-pay-later-need-tighter-regulation (2021).

3. Blakkarly, J. Is buy now, pay later a modern debt trap? https://www.choice.com.au/money/credit-cards-and-loans/personal-loans/articles/is-buy-now-pay-later-a-modern-debt-trap (2021).

4. MIAESR. June Quarter 2021. https://josephcolbrook.com/wp-content/uploads/attachments/Poverty-Lines-Australia-June-Quarter-2021.pdf (2021).

5. Wilkins, R., Vera-Toscano, E., Botha, F. & Dahmann, S. C. The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 19. 170 (2021).

6. Hall, A. Australia’s cost of living over the last decade. https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook46p/CostLiving (2019).

7. Healthdirect Australia. Cost of dental care. https://www.healthdirect.gov.au/cost-of-dental-care (2021).