Debt trap risks for those with multiple Buy Now Pay Later accounts

A new study has found about 40 per cent of BNPL users have multiple accounts.

A new study has found about 40 per cent of BNPL users have multiple accounts. Photo: TND

Buy Now Pay Later (BNPL) companies are lending money to highly vulnerable Australians without knowing how many accounts they have, a new study has found.

A University of Sydney study published this week using transaction data from 819,415 BNPL customers found about 40 per cent of users have more than one account with providers like Afterpay, Zip and Klarna.

BNPL companies aren’t required to do credit checks under responsible lending obligations, senior finance lecturer and study co-author Andrew Grant said, and so vulnerable people are being caught in debt traps.

“There’s such a limited amount of transparency in the marketplace,” he said.

“There’s real concern that lenders don’t know how much BNPL debt people have.”

Dr Grant cited an example of one Australian, Brittany, who suffered financial abuse from a former partner and accrued more than $9000 in debt across a dozen BNPL companies.

Poor credit? No problem!

Brittany told the Sydney University study she was granted loans, despite having a poor credit score.

“I missed so many payments and never received any assistance, just fees,” Brittany said.

The study found BNPL users with more than one account are more likely to be from lower socio-economic areas, be receiving government income support and have higher rates of credit card use.

They also have more personal loans, Dr Grant said.

The average age of BNPL users was 33, and 63 per cent were women who spent about 2.35 more, compared to men.

Dr Grant said the federal government, which is currently mulling a crackdown on BNPL providers, should opt for one of the tougher legal reform options that ensures companies are required to conduct the same credit checks as major banks.

Under an options paper published earlier this year, the government said it was considering three reform options for the BNPL sector, the strongest of which would include requiring credit checks.

The weakest option would merely see an existing industry conduct code strengthened and made mandatory.

“At the moment the regulations are very relaxed around BNPL,” Dr Grant said.

“It’s too easy to obtain a product that may not be beneficial towards you.”

Regulation needed

Study author David Grafton said about 77 per cent of BNPL users identified in his research were low-risk borrowers, who are at low or very low risk of missing payments in the next 12-24 months.

“We don’t have to throw the baby out with the bathwater,” he said.

“But there’s a significant proportion, particularly those that have multiple accounts, that are in serious financial difficulty.

“A bit over 10 per cent of users are at high risk and having access to unregulated credit … is only going to make their position worse,” Mr Grafton said.

“For the benefit of lenders and consumers, BNPL needs to be regulated in line with any other credit product on the market.”

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