We want the Financial Conduct Authority (FCA) to be given new powers over ‘buy now, pay later’ companies. Here’s why we think regulation is needed.
Over the last few years, buy now, pay later has emerged onto the scene as an increasingly popular way to pay, with companies such as Klarna, Clearpay and Laybuy offering delayed payments at the online checkouts of popular stores such as Asos and Marks and Spencer.
These new credit products, also known as bnpl, offer you the ability to spread out the cost of your purchase.
Instead of paying upfront, you can delay payment to a later date, with popular options being pay in 30 days or paying by instalments. Unlike other credit products, such as credit cards, these new buy now, pay later options won’t charge you interest, although some do charge late fees.
These products have become popular as they allow you to spread the cost of almost any purchase. For example, we’ve heard reports of people using buy now, pay later to buy clothes in different sizes and return the items which don’t fit.
While new products are quick and convenient, we are concerned that some features of these products may be harmful to some people. In particular, we are concerned that these products might encourage people to spend more than they can afford to.
A worrying trend?
It’s clear that these products increase spending. In fact, buy now, pay later companies often market themselves to retailers on the basis that people spend more when they use buy now, pay later.
For example, Clearpay has claimed that on average, firms using its service experience a 30% boost in the value of orders.
Our investigations have also uncovered evidence suggesting that buy now pay later users might be spending more than they would do otherwise: a survey for our recent magazine investigation found that nearly a quarter of bnpl users (24%) said that they spent more than they had planned because the service was available.
We’ve also heard concerns from debt advice charity Stepchange that they have seen more people coming to them with bnpl related debt.
Powers to intervene
With buy now, pay later growing rapidly in the UK, it is important that the regulator has the right tools to step in and prevent any harm caused by these products.
However, the Financial Conduct Authority, which regulates similar products such as credit cards, does not currently have the powers to intervene if bnpl companies aren’t treating consumers fairly.
We want to see bnpl firms like Klarna and Clearpay regulated by the Financial Conduct Authority. By giving the FCA the powers to regulate the bnpl market, the Government would enable it to more effectively monitor the treatment of consumers by bnpl firms.
It would also allow the FCA to intervene where consumers are being harmed by bnpl business practices.
The FCA is already looking into unsecured credit, which bnpl is one example of. We have given evidence to that review and will continue to feed in our insight and your experiences as their work progresses.
We will be paying close attention to what their findings are on bnpl products and, if necessary, taking action to push for regulation over the coming year.
Have you used buy now, pay later to pay for things? What was your experience like?