Need to know
- A CHOICE survey has revealed some shoppers are being pressured into high-cost buy now, pay later loans
- This comes as the federal government is considering what form its BNPL reforms should take
- Financial counsellors say people are increasingly using BNPL for everyday essential items
A recent CHOICE survey has revealed a number of cases where shoppers have been pushed into buying products beyond their means using buy now, pay later (BNPL) platforms.
This was the experience of one Brisbane-based man, Dean, who was sold a $12,000 hearing aid he never would have bought had he been required to pay upfront.
The BNPL option wasn't Dean's idea; it was recommended instore by the salesperson.
High-pressure sales tactics
The sales methodology Dean was subjected to is also a matter of concern.
He was walking through a Brisbane shopping centre when he saw a store offering free hearing tests.
"I was aware that my hearing is not the best, so while I didn't go out specifically to get hearing aids, someone was offering to get a hearing test done and it progressed from there," he says.
You don't discuss the price until they have programmed a set for you and everything, they have invested so much in the process, you feel like you have to go through with it
Dean, who was pressured into taking out a $12,000 loan
Dean says he repeatedly asked how much they were going to cost, but the salesperson wouldn't give him an answer.
"They pulled them out after I'd done the test and my particular hearing aids were $12,000. If you had the time to sit and think about it you'd think about if it's really worthwhile or not at that price.
"Even though it's happening as a hard sell, you don't think about it. You don't discuss the price until they have programmed a set for you and everything, they have invested so much in the process, you feel like you have to go through with it. You sort of feel obliged to go through with it," he says.
Consumers are getting the hard sell on expensive items like hearing aids, and being encouraged to use BNPL to pay for them.
He says he later found out that through his private health insurance he could have bought the same hearing aids for half the cost.
"It was almost like the stereotypical used-car salesman upsell. Don't get me wrong, the hearing aids are good, it just wasn't worth the purchase [price] and it wasn't worth going into all that debt for," he adds.
Dean later found out that through his private health insurance he could have bought the same hearing aids for half the cost
Dean was signed up for a loan with the buy now, pay later platform Humm, a company that received a CHOICE Shonky award in 2021. At the time, Humm was offering loans of up to $30,000 that didn't require proper credit checks because of lack of regulation of BNPL products.
Dean says he managed to make his repayments and pay off the hearing aids early, but considers himself lucky that he didn't fall into a debt spiral over the purchase.
"As you repay it off, they offer you more (loans), but I cancelled it as soon as I could," Dean says.
From one loan, more loans grow
Arthur Lee, a financial counsellor with the National Debt Helpline, says he speaks to a large number of clients in financial trouble who end up using BNPL loans for everyday essentials like groceries and paying bills.
He says that many of these clients start off using BNPL to buy non-essential items, and later transition to using them to make ends meet.
"Now they've got this credit accessible to them and they realise they can actually use it to access some of the everyday stuff, and then that's when it sort of starts to snowball," he explains.
"People see BNPL as an emergency fund. The problem is that if you're using your 'emergency fund' for things as essential as food and fuel, what happens when there is an emergency? What other supports are out there that you might not be accessing?"
Big problems
A July survey of more than 500 frontline financial counsellors conducted by Financial Counselling Australia found that the experience of Arthur's clients is far from unique.
More than nine out of 10 respondents (93%) said cost of living pressures were increasingly leading their clients to use BNPL for essentials. Roughly the same proportion (95%) said BNPL debts are leaving their clients in a worse financial situation.
The average person with a BNPL debt had at least three different BNPL accounts
According to the survey, the average person with a BNPL debt had at least three different BNPL accounts, while some clients had up to eight different accounts.
"While most BNPL loans are for small amounts, they cause big problems," the executive summary reads.
Most BNPL loans are for small amounts, but they can cause big problems.
Reforms on the way, but will they be enough?
In May, the federal government announced reforms that would bring BNPL companies under the credit act, which mandates responsible lending checks and hardship requirements, something financial counsellors and advocates have long been advocating for.
However, there will be separate and different 'scalable' regulations for BNPL products, and they won't be treated the same as other forms of credit.
If they don't verify income then there's a real danger that the reforms won't make any difference whatsoever
Karen Cox, CEO, Financial Rights Legal Centre
Consultations around what the final reforms will look like are still underway, but there are early concerns as to whether checks and verification of income levels will be included.
"If they don't verify income then there's a real danger that the reforms won't make any difference whatsoever, because people will still be getting in over their heads," says Karen Cox, CEO of Financial Rights Legal Centre.
Cox says another area where reforms need to be strong is requiring BNPL account information, including credit limits, to be listed with credit reporting bureaus so that lenders can accurately see how many other BNPL and other loans customers already have.
Consumer groups are strongly supportive of the removal of the point-of-sale exemption. This would mean retailers that sell credit are subject to safe-lending obligations
CHOICE campaigns and policy advisor Yelena Nam
CHOICE campaigns and policy adviser Yelena Nam agrees that verification of income and appropriate credit checks are crucial protections that need to be included in the new regime: "This will protect people from being sold into multiple debts, and offer important safeguards from economic abuse."
"Consumer groups are also strongly supportive of the removal of the point-of-sale exemption. This would mean retailers that sell credit are subject to safe-lending obligations. It would ensure that retailers do not unfairly sell buy now, pay later loans to people using aggressive sales tactics," says Nam.
We're on your side
In more than 60 years of making a difference for Australian consumers, we've never taken ads or sponsorship.
Instead we're funded by members who value expert reviews and independent product testing.
With no self-interest behind our advice, you don't just buy smarter, you get the answers that you need.
You know without hesitation what's safe for you and your family.
And you'll never be alone when something goes wrong or a business treats you unfairly.
Learn more about CHOICE membership today
Stock images: Getty, unless otherwise stated.
