Australia’s financial complaints authority has received more than 880 complaints about Buy Now, Pay Later (BNPL) companies since the beginning of the year, as new rules come into effect from today.
The data, provided to TDA, captures the nature of complaints of BNPL users, which predominantly relate to things like the impact on credit reports.
From today, BNPL will be regulated in a similar way to credit cards, in what the Government said would help minimise personal losses.
Buy Now Pay Later
Buy Now, Pay Later is a payment method where buyers pay in instalments over a period of time, rather than upfront.
Nearly 60% of Gen Z have used BNPL, according to a 2024 survey conducted by financial services firm Finder.
BNPL is an interest-fee payment method. Users who don’t pay their instalments on time need to pay late fees, which can lead to debt.
Users
A 2022 survey by Monash University found those experiencing financial stress are 75% more likely to use BNPL systems.
Ahead of the rule changes taking place today, the Government referred to reports of people getting into debt with one BNPL company and then opening up a new account with another company to pay it off, leading to an “unmitigated debt spiral”.
BNPL products “can turn into financial stress as repayments get too much and late fees mount up,” said Australian Financial Complaints Authority CEO David Locke.
Issues
AFCA received 885 complaints relating to BNPL firms between January and May this year, according to data obtained by TDA.
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The bulk of complaints were about the impact of BNPL on credit reports, chargebacks, and account closures.
7% were about financial hardship, including instances where BNPL companies knocked back requests for help due to personal difficulties.
Credit reports measure the health of a person’s finances, used to assess their fitness to receive loans or credit cards from a bank.
It’s also known as “creditworthiness”, which is negatively impacted by debt.
From today, AFCA noted it can now help oversee complaints involving credit reports with any BNPL service, because new rules state that all BNPL companies are required to be AFCA members.
Rule changes
The Federal Government passed new laws for BNPL companies that come into effect today. These changes will mean BNPL companies, such as Afterpay and Zip, will be regulated as a credit product.
Companies will need to have a credit licence, the same type of license that a bank or lender needs to operate. In doing so, they’ll need to look at someone’s suitability to use a BNPL product, factoring in previous debts and payment patterns.
Companies will also need to provide timely responses to “hardship” requests, where loan payback periods could be extended if someone is struggling financially.
Response
Afterpay and Zip, Australia’s two leading BNPL firms, have welcomed the new rules that come into place today.
In response to the complaints authority data, a spokesperson for Afterpay told TDA: “Afterpay does a much better job resolving complaints than traditional financial services companies”.
Zip did not respond to TDA’s detailed questions before publication.
