More than one-in-five Australians have been forced to skip meals, bills and mortgage repayments as a result of overspending on buy now, pay later platforms, new data from the corporate watchdog has revealed.
According to a report by the Australian Securities and Investments Commission (ASIC), 21 per cent of buy now, pay later customers in Australia missed a payment in the last 12 months.
The report covered Afterpay, BrightePay, Humm, Openpay, Payright and Zip Pay, though Afterpay had the largest customer-base at 3.4 million accounts.
ASIC’s research revealed that some consumers who use buy now, pay later platforms were experiencing financial hardship.
In the last 12 months, 20 per cent of those surveyed admitted to skipping meals, while 15 per cent said they had taken out additional loans in order to meet repayments.
Of those who said they took out an additional loan to meet their repayments, 50 per cent were between 18 and 29, while 44 per cent also had a small or medium amount credit contract.
Also read: 7 signs you're addicted to Afterpay
Nearly half of those who missed payments and went without essentials were aged between 18 and 29, and 39 per cent also held a small or medium amount credit contract.
“Buy now, pay later platforms can’t just rely on the number of hardship applications to know if their customers are falling behind financially,” RateCity research director, Sally Tindall said.
“These findings need to be addressed – not brushed over or refuted.”
Tindall said the industry needed to put forward policies to address the issues, like greater education around the pitfalls of overspending and impulse buying.
However, she said buy now pay later provider Afterpay was, in many regards, doing the “right thing” by customers.
“While consumers can find themselves in financial hot water after using Afterpay, the platform puts customers on a much tighter leash than most credit cards,” she said.
Afterpay has a strict spending limit of $2,000, and charges a $10 late fee per missed repayment, and an additional $7 fee if you don’t pay within 7 days. The max fee is 25 per cent of the total purchase, or $68 - whichever is lower.
“The industry has a unique opportunity to address these issues through self-regulation,” Tindall said.
“They’ve already got some good protections in place to stop customers getting on a debt treadmill. Let’s see if they can take this one step further and address the problems highlighted in ASIC’s report.”
ASIC found that some merchants were passing on a surcharge to customers who purchased goods via buy now, pay later platforms, despite there being contractual prohibitions in place to do so.
The corporate regulator revealed it had written to over 5,000 merchants that partnered with buy now, pay later platforms, warning them that it was illegal to mislead or deceive consumers about surcharges.
ASIC stated that though surcharging didn’t occur across the whole buy now, pay later industry, it was more likely to occur for higher value purchases and where consumers were acquiring services.
How can I avoid getting into trouble with buy now pay later platforms?
There are five things you can do to avoid landing in financial hot water, Tindall said.
Read the terms and conditions and understand what fees you could get hit with;
Set yourself strict spending limits;
Limit yourself to one platform, and one purchase at a time;
Don’t impulse buy. Sit on any major purchases for at least 24 hours; and
If you get into trouble, pull the pin and call for help. Each platform should have a hardship policy available.
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