Government announces plans to regulate ‘Buy Now Pay Later’ schemes

BNPL schemes allow customers to buy a given product and defer paying for it, either repaying the outstanding amount in instalments or all at once at a later date.

These types of loans are interest-free, which makes them particularly tempting, as you only pay the cost of the item itself, and nothing on top. However, missing a repayment usually results in late payment charges and damages your credit score, making it hard to apply for a mortgage or other forms of borrowing.

It is also argued that BNPL schemes tempt customers into buying items they can’t afford, spending money that they wouldn’t otherwise and landing them in financial trouble. This is why the model has become so popular among retailers in recent months, who offer the schemes to customers via lenders like Klarna and ClearPay.

Rocio Concha, Director of Policy and Advocacy at Which?, said: “Using Buy Now Pay Later is an easy and convenient way to pay for millions. However, with currently little to no information or warnings about the risks of incurring late fees or getting into debt, it raises concerns that many shoppers do not fully understand the products they’re using.”

This problem is made worse by the fact that lenders are currently not required to subject BNPL customers to credit checks, which are normally standard procedure when you apply for a loan or credit card. This means that customers with histories of missed repayments and debt problems usually have nothing stopping them from using these schemes.

Caroline Siarkiewicz, Chief Executive of the Money and Pensions Service, said: “Research from our Debt Need Survey, which measures how many people need debt advice in the UK, has shown that four in ten people who had used Buy Now Pay Later products in the last six months are in need of full debt advice. A further third are at risk of falling into problem debt, and only a quarter of those demonstrated that BNPL is appropriate in line with their financial commitments.”

Read more about these products in our article How do ‘Buy Now Pay Later’ schemes work?

Author: wpadmin

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