More regulations are being urged for buy now, pay later platforms by global consumer organisations due to fears of increased debt, leading many to wonder how customers can use buy now, pay later platforms responsibly.
Consumers International, representing several global consumer organisations such as CHOICE and Consumer NZ, have released a statement asking for effective regulation of the buy now, pay later (BNPL) space.
The requests in this statement include regulating BNPL similarly to other forms of credit, obligating BNPL providers to assess whether it’s suitable to provide credit to customers and requesting BNPL providers to report publicly on aspects like late payments and numbers of customers in arrears.
Consumers International have proposed that several NBPL products have been “designed” in a way that keeps them outside of laws that regulate other credit products, such as credit cards. Most significantly, this prevents BNPL providers from being obligated to perform credit checks or any other assessment on customers’ ability to afford or service credit.
The statement also notes that BNPL debts are getting bigger, and when customers cannot pay on time they are being stung with late fees. These late fees can “add up to much more” than would have been charged in interest if the customer used a credit card or payday loan, suggests Consumers International.
Further, reliance on BNPL platforms may lead to adverse impacts on the environment by customers who feel encouraged to purchase more than they could afford originally. The statement by Consumers International suggests that digital financial services should take into consideration the environmental impact of their platforms in encouraging excess consumption, such as textile waste from fast fashion purchases.
This statement from Consumers International mirrors sentiment from a report released by Financial Counselling Australia in December 2021, in which over half (61%) of financial counsellors surveyed said most or all of their clients that used BNPL struggled to meet living expenses.
Is it still safe to use BNPL platforms?
It's fair to suggest not all BNPL customers will possess the same financial literacy, and it is likely that some may find themselves accruing debt in the form of late fees.
However, it’s also worth keeping in mind that BNPL platforms are just a financial product. And like any financial product, if you have the financial literacy to understand the risks and responsibilities, they may be a helpful tool.
For example, a credit card can easily allow customers to snowball debt into the tens of thousands of dollars range through interest charged on unpaid balances. But if you pay your credit card balance in full each statement period you theoretically would never be charged interest.
Customers who already use BNPL platforms, such as Afterpay and Humm, may want to keep the following RateCity tips in mind when using BNPL at checkout:
- Know your fees and costs. Take the time to look up the fees you may be charged with if you do not pay your instalments on time, and any other account-keeping fees involved. You may be surprised about how much it can cost you if you don’t stay on top of your payments.
- Set payment reminders. As BNPL payments are typically charged in fortnightly instalments, it’s worth setting reminders in your phone or calendar that a payment is coming up. This way you can ensure the funds are in your account and you won’t be charged a late payment fee.
- Consider spending limits. While BNPL providers often set spending caps/credit limits, you should consider setting your own that is in line with your actual income and budget.
- One platform limit. Another option worth considering to reduce your likelihood of accruing BNPL debt is to limit yourself to one platform at a time. Juggling multiple payments and multiple fees across different BNPL platforms means you may be one unexpected bill away from disaster.
- 24-hour rule. Resist the urge to over-consume or make impulse purchases by considering setting a 24-hour rule. This means sitting on major purchases for at least 24 hours to ensure you really want or need it.
- Consider your environmental impact. Addressing the financial burden of misusing BNPL platforms is one thing, but it may still be worth considering whether you are shopping in a sustainable way. Excess and over-consumption of products may increase textile waste from the production of fast fashion, for example, or increase the number of plastics in the environment whether form the production of said products or the packaging. Before you check out, ask yourself if there is a more sustainable version of the product or service.