Like most conscientious shoppers, Sam always looks for supermarket specials for items his family needs.
But when the pandemic hit, the discounted products quickly disappeared as surging demand left shoppers fighting over goods. Then inflation took hold, and prices soared.
This left Sam, a father-of-three on a disability pension, in a difficult position.
“Instead of paying half price for something, I was paying above the normal price,” says Sam, who asked for his surname not to be published.
“We had to eat so I started using buy now, pay later. I could press a couple of buttons on my phone and get my groceries, but it didn’t take long before I couldn’t afford to pay it back.”
As the name suggests, “buy now, pay later”, or BNPL, allows customers to buy products before paying for them, often in staggered repayments.
The sector promotes itself as a discretionary spending tool that a customer may use for fun purchases, such as jewellery or camping gear.
But it is increasingly being used to pay for necessities such as electricity and groceries.
Claire Tacon, assistant director of financial counselling at the Consumer Action Law Centre in Melbourne, says people calling the national debt helpline with a BNPL debt had almost always exhausted other credit options.
“They tend to have maxed out credit cards and can’t use those any more so they are turning to buy-now pay-later,” Tacon says. “More and more people are getting caught in a debt spiral.
“The amount of buy now, pay later that’s out there is hiding the truth about how many people aren’t able to pay for the essentials to live a quality life.”
Calls to the debt helpline have increased by up to 37% from the same period last year, a period that coincides with rapidly rising borrowing costs, high rentals and increasing food and energy prices.
While Australia’s inflation rate eased slightly during the first three months of 2023, housing and food costs remain uncomfortably high.
Tacon says that while traditionally people calling in had experienced a significant event that disrupted their finances, such as a job loss or death in the family, there were now calls from people just unable to cope with rising costs.
“Lately, it’s like nothing’s changed for them,” she says. “It’s just that their income hasn’t gone up, but their mortgage payments have risen, or their rent has risen through the roof.”
In 2015, Australian-founded Afterpay pioneered the no-interest instalment payments model that has now seen dozens of new players, such as Zip and Humm, enter the market.
Retailers generally support the sector and it can allow consumers to pay for goods at a far cheaper rate than a credit card or payday lender would charge.
The representative body, Australian Finance Industry Association, says the sector is a major economic contributor and offers consumers “convenience, interest-free finance, and better cashflow management opportunities”.
Its use is growing quickly. BNPL is now accepted by about 160,000 Australian businesses, an increase of 17% compared with the previous financial year, the association says.
The average BNPL transaction value is $136, but some providers do lend up to $30,000.
While BNPL is a form of credit, the sector is exempted from the Credit Act, which offers protections for consumers and places responsible lending requirements on providers.
The federal government is considering bringing the sector under the credit code, having completed a submissions process late last year. In a report on the sector, the government noted that there can be excessive or disproportionate consumer fees and charges including default fees.
In the submissions process, most BNPL providers argued for a fair balance between regulation and flexibility rather than being treated like credit card providers.
Regulators and social services groups generally want the sector brought under the Credit Act.
The Good Shepherd charity says in its submission that BNPL was taking the place of adequate social security payments and transforming it “into a profitable industry by lenders, with high effective interest rates disguised as late payment and account-keeping fees”.
Sam says that as his debts increased, so too did his expenses. More than half of his pension goes to rent.
“As much as I want to pay back my debts, I can’t afford to with a family,” he says.
Sam, who is receiving help from the Consumer Action Law Centre, says he supports increased protections for customers so that they don’t end up in untenable positions.
“In my case, it was either pay the debt or buy food.”
• If you are feeling overwhelmed or need financial help, call the national debt helpline on 1800 007 007
