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Way Forward supports Federal Government plan to regulate BNPL as a credit

Way Forward – Free Debt Solutions is pleased to see the Federal Government proposing to regulate Buy Now Pay Later (BNPL) as a credit product. This will raise awareness of the pitfalls from of these products, especially experienced by people in financial hardship. 

“Putting BNPL regulation on the national agenda is a positive step in the right direction and we look forward to seeing more information about the specifics of these laws as they are drafted,” Way Forward CEO David Berry said. 

“The next step is ensuring that the details and then implementation of these new laws genuinely help people who are in trouble, or at risk of falling into hardship. 

 “We would like to know more about the ‘scalable’ proposal, as we know from experience supporting people in financial hardship, that a high number of small transactions is where some people end up in dire trouble.  

“There’s been an exponential growth in the use of BNPL products, especially for people in hardship who are using it to try to ‘catch up’ on their debts, which we know never happens, it can only make a bad problem, worse.

“We welcome further steps taken by the Federal Government to protect people who are at risk of harm or experiencing harm already. This issue needs to be on the national agenda.”

In 2022, Way Forward undertook comprehensive research into the use of BNPL by our clients, all who are in hardship, with 80 percent of survey respondents indicated that they have used BNPL services. 

The findings of this report confirmed a correlation between poor mental health and complex debt, insufficient savings, and financial vulnerability. 

In some cases, BNPL is used to buy essentials so that cash can be directed to paying off existing loans. Further, the ease of access to BNPL facilities can mean that financially vulnerable users quickly end up in overwhelming financial difficulty. 

From this research, Way Forward found the sources of harm our clients experience from using BNPL can be categorised into the following: 

  1. Excessive ease of access 
  2. Lack of support for vulnerable individuals 
  3. The inability of BNPL users to understand and manage all the transactions 
  4. What goods and services BNPL is being used for 
  5. Poor mental health outcomes as a direct result of unmanageable debt 
  6. BNPL companies have failed to self-regulate and industry needs to be regulated by government. 

In its response to calls for submissions into regulation of the BNPL sector under the Credit Act, Way Forward asked that these new laws include:  

  • Restrictions on the use of BNPL for essential items for people in financial difficulty 
  • Mandatory credit checks  
  • No unsolicited limit increases  
  • Further verification/substantiation where more than two BNPL facilities are in use  
  • Governance by External Dispute Resolution (EDR) 
  • Mandatory hardship reporting  
  • Greater clarity on purchases and the related instalments