Charities Warn Of Danger Of Buy-Now-Pay-Later Debt

A group of charities has sounded a warning over the increasing use of buy-now-pay-later (BNPL) platforms to buy goods.

Citizens Advice (CA), a network of legal, financial and consumer groups, has said many users are getting into debt and finding it difficult to buy food and pay bills. BNPL is especially popular in some high street outlets and among young people buying online. However, CA says many consumers have regretted using it.

The charity does not wish to name buy-now-pay-later firms but has called for more stringent regulation. Research found that 45pc of 18-34-year-olds have used this method of payment in the last 12 months.

The repayment option is often displayed at online checkouts as an easy way to split or delay payments on items such as electronics or clothing, using incentives such as it being ‘interest-free’. But the charity network says it can be a ‘slippery slope into debt’.

The consumer advice organisation said that in total 27pc of UK adults have used such firms in the last 12 months, accounting for 37pc of disabled people and 45pc of those with a mental health problem.

Buy-now-pay-later can affect credit score

The average person repays £63 per month, but CA found nearly two-in-five (5.7 million) who have used BNPL in the last year didn’t consider it ‘proper borrowing’ and six million didn’t understand fully what they were signing up for.

CA refers to one consumer who signed up for more than she expected as an example of the trouble people can land themselves in. A woman in her early thirties bought £600 worth of clothes and signed up to a buy-now-pay-later firm to pay in instalments. When she did not receive the goods she had ordered, she cancelled her payment to the firm while she waited for the retailer to resolve the issue.

Subsequently, she experienced harassment by phone calls, emails and letters from a debt collector, all the result of buying clothes online. The firm had said they would refer her on to someone but she had had no idea it would be a debt collector and that BNPL could affect her credit score.

CA has warned that four in ten of those who have used buy-now-pay-later firms in the last year are struggling to repay. Research found that 25pc of consumers regretted using these platforms to repay debt, with customers saying they could not afford repayments or were spending more than they anticipated. The charity said firms must revamp their checkout procedures and improve affordability checks.

Both the Financial Ombudsman Service (FOD) and the Financial Conduct Authority (FCA), it said, have a greater role to play in the protection of consumers and regulation of the industry.

Reform of consumer protection needed

Alistair Cromwell, acting CEO of CA, said it shouldn’t be possible for people to sign up for credit without realising, and the fact that it happens so often means that root and branch reform is needed. This industry, he said, more than trebled in 2020, and while these products work for many shoppers, the regulator has correctly recognised the potential for harm. Robust consumer protection must keep pace with changes in how people shop, he added.

Alex Marsh, UK head of one of the most popular buy-now-pay-later firms, Klarna, said there is now a range of BNPL providers in the market but the findings in the report do not accord with the experiences of the more than 12 million consumers who opt to use Klarna’s interest-free, fee-free services each year.

His company, he said, makes it ‘crystal clear’ for consumers at checkout that this is a credit product and performs a credit check each time they use the service. He also pointed out that help is available 24/7 to support the small number of customers who regrettably find themselves in difficulty.

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