Debt raised through buy-now-pay-later (BNPL) services are increasingly contributing to hardship among Australians, a new report from Financial Counselling Australia has found.

Just a year ago, a fraction (8 per cent) of the financial counsellors surveyed for the report said most or all of their clients had BNPL debt.

Now, more than half of them note the effects of services like Afterpay and Zip among their clients.

BNPL products typically let customers pay for products in a set of interest-free instalments, making money by charging merchants for the transactions and through customer late fees.

CEO of Financial Counselling Australia, Fiona Guthrie, said there was a growing trend of people using BNPL services to cover essential items as opposed to the discretionary spending it might once have been geared toward.

“This is very worrying, especially as we head into Christmas which is traditionally a time of heavy spending,” she said.

“Buy-now-pay-later could leave people with a financial hangover come January.”

Alarmingly, some respondents said their clients didn't consider BNPL as debt and frequently neglected to mention it as a liability when doing a statement of accounts.

Cutting back to make payments

A majority of financial counsellors said their clients who have BNPL debt struggle generally to pay for other living expenses – something echoed by last year’s report from the Australian Securities and Investment Commission (ASIC) which found that around 20 per cent of consumers who used BNPL services cut back on essentials in order to make payments.

Some financial counsellors said they had seen clients “trapped in the cycle” of using BNPL to make ends meet by buying vouchers for major supermarket chains.

The recent expansion of BNPL into pubs and hospitality venues triggered concern among financial advocates last month who similarly warned that it could exacerbate hardship for people who are already struggling to manage their money.

There was a sense of frustration from the financial counsellors – 95 per cent of whom said there should be stricter regulation of BNPL products – that BNPL isn’t legally treated as a line of credit in the same way as credit cards and personal loans are.

“Why should BNPL get a free pass to not abide by responsible lending laws?” one respondent said.

Others reported that clients often had multiple BNPL accounts from more than one of the 15 BNPL companies currently listed on the Australian Stock Exchange (ASX).

“It’s too accessible,” a survey respondent said. “Clients now have the option to pay bills with BNPL and that’s pushing them into even more debt and a mindset that discourages them from living within their means and ‘normalises’ debt”.

Guthrie called on the government to conduct a comprehensive review into BNPL and develop a more appropriate regulatory framework.

The local BNPL sector has largely been left to its own devices, operating under a self-regulating code of practice which came into effect in March this year.