Need to know
- Buy now, pay later (BNPL) providers are continuing their expansion into all aspects of daily life
- CHOICE joins other consumer groups concerned about the use of BNPL for essential services
- Some customers say their banks have asked them to close accounts to get a loan
Afterpay customer Lisa Findlay tells CHOICE she'd been using the buy now, pay later platform for about two years when she applied for a home loan with Bankwest.
She was taken aback when the bank inquired about her BNPL accounts, asked her to close both her Zip and Afterpay accounts – then send proof of their closure to obtain the loan.
"I didn't really see it as credit, but I kind of understand that it kind of is now," she says. "I was really hesitant to close the Afterpay because I love using it so much."
She says she spoke to Afterpay, who advised her to close the account for a few months until the loan had gone through and then reopen a new account with them, which she did.
We've spoken to several other BNPL users who faced similar situations when applying for home loans at other banks.
Banks may consider your BNPL use
We asked each of the big four banks how they see the use of BNPL when it comes to assessing a customer's creditworthiness when applying for a home loan.
Commonwealth Bank of Australia (CommBank)
CommBank says customers are not asked to close BNPL accounts during the home loan assessment, but that BNPL use is considered, along with other factors as part of its overall assessment.
"When assessing a customer's ability to service a loan, we look at a range of commitments including BNPL transactions, where applicable," the bank tells CHOICE.
When assessing a customer's ability to service a loan, we look at a range of commitments including BNPL transactionsCommBank
"All applications are assessed on a case-by-case basis and we encourage customers to speak with their lender or broker early on in their journey to ensure they are in the best position to meet ongoing repayments."
NAB says it considers a customer's BNPL use when assessing them for a home loan, along with other expenses.
"NAB applies a range of measures to help us verify information to determine a customer's suitability for a loan," says Rachel Slade, NAB group executive personal banking.
Westpac says it asks customers about all debts, including buy now, pay later debts, during its assessment of a loan.
We asked ANZ if they take customers' use of buy now, pay later services into account when assessing them for a home loan, but they didn't respond to our enquiry.
Afterpay suggests users close accounts only temporarily
Afterpay is aware it's factored in when it comes to home loans and has a section in the help centre of its website dedicated to it.
It also says it's aware of customers being asked to close their Afterpay accounts to get a home loan, and suggests the reason may be banks' bias against BNPL providers.
"Unfortunately, we have sometimes heard of this happening, even though it shouldn't," Afterpay says on its website.
"Maybe it's got something to do with the fact that banks don't like it that consumers are preferring to move away from credit to other ways of spending, such as Afterpay."
Afterpay suggests users close their accounts while getting the home loan, then open them up again after the loan has been approved.
"We'd love to have you back," the company says.
Some banks take BNPL use into account when assessing a home-loan application.
Buy now, pay later expanding into worrying territory
Buy now, pay later (BNPL) providers such as Afterpay, Zip Pay and Humm are continuing their relentless expansion into all aspects of life.
In November, Afterpay announced a partnership with Australian Venues Co., a behemoth of the hospitality industry. The business owns more than 160 pubs and venues, which would now offer Afterpay's on-the-spot loans to punters to buy food and drinks. Combining alcohol and easy money – what could possibly go wrong?
BNPL for essential services
In October, Xplor Technologies announced a partnership with Zip that would enable parents of children at more than 10,000 childcare centres across Australia and New Zealand to access BNPL services to pay for their children's care. It's a far cry from the industry's general claim that the unregulated loans are for discretionary spending.
And although the major BNPL players may limit what they move into, new players without such reservations are popping up and hoping to take advantage of the lack of government regulation.
New provider Tenant causing concern
In February, consumer groups raised the alarm about a new BNPL provider called Tenanting, which offers to pay your rent up front. You then pay it back in instalments with a five percent fee tacked on, thereby increasing your rent.
At CHOICE, we recently asked supporters to send through some of the most shocking examples of BNPL offers they'd seen. Many pointed to Afterpay's decision to let people use it to buy alcohol at venues, while others found the offer of BNPL to pay for elective surgeries and medical procedures most worrying.
Patrick Veyret, senior policy and campaigns adviser at CHOICE, says the ongoing move of BNPL into essential services is concerning.
"It is extremely worrying that BNPL providers are now being sold for services such as paying rent or childcare bills," he says. "Our research shows that one in five people who have used BNPL used it to pay for essential goods and services.
BNPL providers are becoming more and more like payday lenders by targeting people with predatory loans to purchase essential goods and servicesPatrick Veyret, CHOICE senior policy and campaigns adviser
"BNPL providers are becoming more and more like payday lenders by targeting people with predatory loans to purchase essential goods and services. In fact, some BNPL providers (such as Humm) are simply rebranded payday lenders.
"As a community, we need to ensure that people have enough income to pay the bills and not be reliant on predatory loans such as payday loans or BNPL to make ends meet."
Consumer protections too weak
Although the BNPL sector continues to operate outside the credit code without government oversight, it does have its own self-regulation model. But consumer groups including CHOICE have found that the consumer protections provided under the BNPL voluntary code of conduct are weak.
"The BNPL [industry] is aiming for complete ubiquity in the marketplace, while lobbying for very limited regulation or oversight," says Veyret.
"Australia already has some of the highest household debt in the world. Allowing the rapid expansion of unregulated debt is a serious cause for concern, for both individuals, households and the broader economy."
Time for regulation
We surveyed more than 1000 people across Australia in January to gather their views on BNPL and regulation.
Almost nine in 10 respondents (88%) agreed that BNPL should have similar consumer protections as credit cards. That figure was even higher (94%) among those who had used BNPL in the previous 12 months.
Nearly the same proportion of people (87%) said that BNPL providers should check a borrower's capacity to repay the loan as part of the application process.
The frequency of BNPL use varied widely, with only a small proportion of people (8%) using it once a week or more, and 39% using it once a year or less.
Missed payments result in financial hardship for most
Of those who had missed a BNPL payment, almost eight in 10 (78%) have experienced some form of financial hardship as a result, such as struggling to pay debts, taking out a loan or cutting back on essentials to manage their BNPL fees or debts.
According to CHOICE's Veyret, now is the time for the government to step in and regulate the industry properly.
88% of Australians agree that BNPL services should have similar protections as credit cardsPatrick Veyret, CHOICE
"The Australian public overwhelmingly supports closing the loophole on BNPL," he says. "Eighty-eight percent of Australians agree that BNPL services should have similar protections as credit cards.
"It's time for the federal government to close the loophole and regulate the BNPL industry before it's too late."
An alliance of 12 consumer groups from across the world are calling on governments to strengthen consumer protections against buy now, pay later loans. Add your support.