If you’ve been browsing the internet for summer sale bargains recently, you’ve probably come across the tempting option to buy now and pay later. This allows you to split the cost of your purchase into several repayments over a few weeks. At first glance, it may seem like a win-win situation since it’s interest-free, thanks to companies like Klarna and Clearpay who charge fees to the retailer rather than the customer.
However, there are risks involved. If you miss a repayment, you’ll be charged a late payment fee. And if you default entirely, you could be handed over to a debt collection agency. Even before the current cost of living crisis, charities and debt campaigners were expressing concerns about the dangers of this type of borrowing. They worried that consumers were using it not just for occasional treats, but for everyday necessities as well.
Surprisingly, buy now, pay later (BNPL) remains unregulated by the Financial Conduct Agency (FCA), whose role is to protect consumers. This lack of regulation has prompted many campaigners to fear that the Treasury is abandoning its plans to bring BNPL under the wing of the FCA. In fact, it has been two years since the Treasury announced its intention to regulate this industry.
An FCA review conducted prior to this announcement identified several problems, including poor consumer understanding, a failure to assess affordability, and inconsistent treatment of customers in financial difficulty. Despite these concerns, BNPL lenders openly acknowledge that their services encourage increased spending. Clearpay, an Australian firm, boasts that their merchants have seen basket sizes up to 50% larger in value since implementing their BNPL offering.
This raises questions about whether BNPL truly empowers consumers to manage their finances more smoothly or if it tempts them to buy things they can’t actually afford. Companies like Klarna claim to be “keeping people out of debt” by charging zero interest, but skeptics like Labour MP Stella Creasy have reservations. She previously fought against the practices of payday lenders and believes that BNPL could lead to a similar outcome.
The FCA has expressed its concerns about the harms associated with BNPL. Managing director Nikhil Rathi recently stated that an estimated one in ten users of BNPL end up in the hands of debt collectors. The FCA is ready and willing to supervise this sector and protect consumers, but it seems that the Treasury is causing a roadblock by delaying the implementation of regulations.
Campaigners, including consumer rights expert Martin Lewis and the CEOs of Citizens Advice and Which?, have written a joint letter expressing their concerns. They highlight the lack of safeguards for people who are already struggling financially and warn that they are most likely to turn to BNPL as a last resort.
Experts in the sector believe that the delay at the Treasury may be due to City minister Andrew Griffith, who has been influenced by warnings from the industry about the risks of strict regulations. Griffith has a pro-business stance and has even expressed his desire to scrap inheritance tax. Debt campaigners are now calling on the Treasury to act swiftly and protect cash-strapped consumers who rely on BNPL to make ends meet.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
