/ Money

Why we’re calling to regulate Buy Now, Pay Later

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?

Michael Ives says:
14 December 2020

Hi, our freezer packed in the other day just a week after the tumble dryer. As money is a little tighter than usual I was attracted to the buy in 3 instalments plan Klara offered on the Hughes website. I don’t like having unnecessary credit scoring or checks so this seemed ideal – buy the item, pay around £100 followed by two further monthly payments of £100 in January and February. I did see the other offers you have mentioned but was concerned firstly, about a credit search and secondly, having this all to pay in 6 or so months time and the possibility of falling into the trap of having interest added.

Michael, a sensible use of Klarna if may may say so. All you have to do is remember to make the future payments.

However, one question to consider is whether you could buy a product cheaper through another retailer who does not offer bnpl. Even if you do not want to pay all the money upfront you could, if you have one, use your credit card to spread the payments if the lower cost more than offest interest charges.

A criticism of bnpl stems from “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. “. Well, isn’t this same criticism fairly levelled at credit cards, the most used method of making payments?.

I think the main point of this discussion should be to have bnpl providers regulated by the FCA like most other reputable credit providers.

Does the protection we have with chargeback and section 75 still work when paying with these methods?

I suggest you ask the company, Kev. I recall that Money Savings Expert reported on some loopholes relating to our Section 75 protection.

I strongly support the call by Which? to require companies that offer ‘buy now, pay later’ services to come under the remit of the FCA. It would be interesting to know why this protection was not in place before they were allowed to trade.

I am well aware that some people do get into debt as a result of illness, redundancy and other good reasons but there seems to be something immoral about companies encouraging us to live in debt rather than save and buy when we can afford to.

I think we also encourage ourselves to do this. We can use self restraint.

Many people do live very successfully by getting what they want first and paying on tick, rather than saving until they can pay. This may be for household goods, house extensions, holidays. Providing they understand their finances and know they can repay – barring the unforeseen – then I see no problem if that is a lifestyle they choose.

Others do not have this restraint, or have an unstable financial situation, or don’t (want to) understand the consequences.

If an “essential” bit of equipment stops working – fridge freezer breaks, car needs repairing, a heating repair – then saving up before it can be sorted is not an option. It is the non-essential spending where we can criticise others. But credit cards gave us this facility decades ago and it has not been a wholesale disaster.

These companies do not force us to use credit but they provide the means for us to make a choice. What we need is to educate as many as possible in the ways of the financial world from an early age.

If you can avoid debt you will have more money to spend than if you are paying interest. I have not looked at buy now pay later deals and assume that there might be better deals elsewhere. I once bought a car on 12 months interest-free credit, but only after failing to find a better deal.

I don’t remember being given financial advice but my parent were careful with money and minimised expenditure, so that if it was necessary to spend money they could rely on their savings. That has always been my approach.

Although I do have credit cards I pay them off in full to avoid interest charges. Once I was ill and forgot, so set up direct debits to settle my credit card bills.

I see it as very sad that thanks to student loans, young people are encouraged to live in debt and may become conditioned into believing that this is normal. Consumerism has encouraged many to live beyond their means and in the worst cases has resulted in mental health problems, eviction and misery – even suicide.