Victorian family face bankruptcy from BNPL debt as warnings
issued about Afterpay Day

Sarah Sharples

Catherine* and her partner were “scrambling” to cover the cost of groceries with a newborn baby and racked up thousands in Buy Now, Pay Later (BNPL) debt to “stay afloat”. But when they couldn’t pay the money back they said the “ruthless” providers pursued them hard.

The 40-year-old said she had opened accounts with Afterpay and Zip since their inception and had previously treated them like a credit card — where she never spent more than she could afford to repay over the four instalments.

But then things started going very wrong over the past 12 months as her financial situation started to “disintegrate”.

The couple had relocated to regional Victoria to take up manager positions in traffic control but it did not work out and both were forced to find new jobs.

Catherine picked up a six-month contract and found out unexpectedly she was having a baby – having previously been told she could never get pregnant.

Catherine was forced to turn to BNPL to afford simple things like groceries. Picture: NCA Newswire / Gaye Gerard.

She racked up the biggest debt with Zip. Picture: NCA NewsWire / John Gass

Her partner was working as a labourer but as Catherine was in a contract role it meant she would have no access to paid parental leave.

“We weren’t planning or budgeting for the pregnancy and that’s where it spiralled out of control. I was about to go off having a wage, we had other debts – we had taken on for example car repayments – but not with the expectation of getting pregnant and stopping work,” she told news.com.au.

“We had payments that we had to budget for on a single wage which became financially difficult. Our baby was very sick and at eight days old he was transferred to hospital for two weeks in Melbourne, so my partner had to stop work for two weeks and that caused us a lot of grief.

“We fell behind on things like rent and everything and it all went downhill.

“We had to turn to buy now, pay later as … when we got cornered we looked at options to get essentials like groceries and had to make hard decisions on putting food on table.”

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Catherine (not pictured) said she wasn’t using BNPL on fancy items but just to survive. Picture: Supplied

Catherine said the couple used Afterpay and Zip to buy gift cards for Coles and Woolworths – meaning they could pay a minimum of $50 upfront but access the $200 gift cards so they could buy food and nappies.

“It spiralled out of control. We got put into corner where we had no choice but we knew the risks of doing it,” she said.

“My partner’s work was wavering and he got made redundant two weeks before Christmas, so we were scrambling and pretty much trying to stay afloat and the system came undone.

“We were essentially spending money on these gift cards that we didn’t have but that was for groceries and to live.”

The cost of living was also battering the couple with rising petrol prices, while their rent was hiked when they were already behind.

“So in order to stay where we were with a brand new baby, the rent had to be a priority and this is where buy now, pay later became a problem,” she added.

“At the time it went up $20, when we behind already and paying an extra $100 a week on top of what the rent was to try and catch it back up. It was quite distressing as everything spiralled out of control.”

Catherine said even now they currently are still two to three months behind on their rent.

The couple are two to three months behind in rent and are negotiating on their BNPL debts. Picture: Supplied

Then there is the BNPL debt. She said she has $3000 owed to Zip for both Zip Pay, which is an online shopping wallet and Zip Money, a line of credit, while there is $500 outstanding to Afterpay.

Meanwhile, her partner also has debts possibly in the thousands with BNPL providers.

“We also have debts with Klarna, Openpay – any BNPL we have already tried — with around $50 or $60 on those,” she added.

“It’s not big but we were using every system we could to get gift card for groceries.”

Catherine said their situation became “quite severe” and at the end of last year they reached out to a financial counsellor at the National Debt Helpline as their debts spiralled.

“We said we have a problem we need to speak to someone and get this figured out as we are about to go bankrupt and lose our cars,” she said.

“I had tried to contact Zip on a number of occasions and there was no understanding and no leeway. Even the financial counsellor has had issues with both providers to negotiate terms.

“Afterpay sent debt collectors. These companies are pretty ruthless, they are not understanding … When you contact these companies and tell them you’re under financial hardship they kick it back in your face but when a financial counsellor does it, they don’t listen then, but then they’re legally forced to stop repayments.”

She added she could not speak to Afterpay on the phone at all.

If a customer does miss a payment, Afterpay notify them, provide them with notice that fees may apply after a certain date, as well as provide a short period of time to make this payment to avoid a late fee, according to a spokesman. Picture: Supplied

An Afterpay spokesman said it did not decline hardship requests and offered “flexible payment timelines” where if agreed added “no additional fees or costs”.

“Unlike traditional banks and lenders, we don’t require customers to provide evidence of their hardship. For example, other lenders require evidence that consumers have lost their jobs or are suffering from an illness – we do not require this. We make it as simple as possible,” he said.

“We find that overwhelmingly customers prefer not to have to explain their sensitive situations verbally. For those customers that would prefer a discussion, we enable telephone discussions on request.”

He added that the hardship arrangements with Afterpay represented just 0.49 per cent of its active customer base.

The spokesperson said they work with “collection partners” but “use a light touch collections process which is overwhelmingly based on text messages and emails rather than phone calls”.

“We do not legally enforce debts nor do we sell debts to collection agencies,” he said.

“If a customer does not pay us back, they are no longer able to use our service.”

There are warnings about Afterpay Day on March 16. Picture: NCA NewsWire / John Gass

Catherine acknowledged that people need to take responsibility for using these type of services but for the couple it was “circumstances beyond their control” and she wasn’t buying fancy items. Instead, she had turned to BNPL to survive and “put food on the table”.

The mum-of-one wanted to warn people not to use the services unless they are employed and are prepared to pay for items in the allocated time.

Her warnings come as Afterpay Day lands on March 16 with consumer groups urging people to be aware that a shopping spree could easily become a case of “Buy Now, Pain Later”.

Five consumer groups have teamed up together to call on Aussies not to be lured into Afterpay’s “opportunistic marketing campaign” which will see major retailers tempting people into unregulated loans and could become a “financial mess” when repayments are due.

Financial Counselling Australia CEO Fiona Guthrie. Picture: Supplied

Financial Counselling Australia CEO Fiona Guthrie said financial counsellors are repeatedly dealing with the fallout from BNPL marketing gimmicks that encourage impulse buying.

“We see it again and again – people facing financial hardship because, without proper rules around BNPL lending, it is too easy for people get in over their heads,” she said.

“Financial counsellors often help people who have made a series of what seem like small purchases, but quickly add up to a lot of money. Pretty soon, people get overwhelmed, they miss a payment, are hit with late-payment fees and possibly account-keeping fees, and their debt starts to snowball.

“It’s a case of today’s hot-buy becoming tomorrow’s headache.”

She added people buying a few items over the next few weeks could suddenly find they have committed the equivalent of their food or rent to BNPL repayments.

Consumer Action Law Centre CEO Stephanie Tonkin. Picture: Supplied

Consumer Action Law Centre CEO Stephanie Tonkin was also quick to criticise BNPL as unregulated credit that was exploiting loopholes in the system.

“We hear all the time from people who don’t have one BNPL debt, they have multiple accounts which push them into a debt spiral and financial crisis,” she said

“Stunts like ‘Afterpay Day’ are just going to make it worse for those already struggling to get by. Warnings like this one wouldn’t be necessary if BNPL was fully regulated under the Credit Act.”

Financial Rights Legal Centre CEO Karen Cox added many budgets are already stretched by rising interest rates, rents and inflation and encouraging people to acquire more debt without any checks and balances on their ability to pay is setting them up to fail.

Choice CEO Alan Kirkland said BNPL providers frequently use marketing tactics like Afterpay Day to encourage people to take on extra debt.

“These tactics include offering ‘discounts’ in order to make people feel like they’ll be missing out on a good deal unless they buy on the spot,” he said.

“BNPL providers are taking advantage of loopholes – this means that they don’t have to check whether a loan is affordable before providing it.”

Alan Kirkland CEO of Choice. Picture: News Corp Australia

Consumer Credit Legal Centre WA principal solicitor Roberta Grealish added it was “hugely problematic” that people don’t view BNPL as credit, so they don’t take it as seriously when signing up.

“These types of marketing campaigns only compound the problem,” she said. “We know that the consequences can be just as serious as other forms of credit. We must change the rhetoric.”

The Afterpay spokesman said it was a signatory to the voluntary BNPL Code of Conduct, which he claimed has enshrined consumer protection measures across the industry.

“Research by Accenture, commissioned by Afterpay, found that vulnerable consumers gain the most from switching from credit cards to Afterpay,” he noted.

“The most vulnerable credit card users pay up to seven times more in fees compared to Afterpay users.

“Afterpay is an important alternative to credit cards – especially in times of rising interest rates. Its imperative shoppers have an option to spend their money responsibly without incurring interest charges.”

Afterpay Day is an opportunity for consumers to make the most of deals that are available to save on important purchases, he added.