Tag: buy now pay later

Shoppers to be protected by new Buy-Now, Pay-Later rules

  • Providers will have to ensure lending is affordable – stopping users from accumulating unmanageable debt  
  • Rules deliver better protection for shoppers and clarity for innovative sector after years of uncertainty

Millions of shoppers are set to be protected by new rules for Buy-Now, Pay-Later products.  

Buy-Now, Pay-Later products have become increasingly popular in recent years as they allow people to spread the cost of purchases over time, but users currently do not have access to a range of key protections provided by other consumer credit products.  

The Government has today launched a consultation on proposals to fix this by bringing Buy-Now, Pay-Later companies under the supervision of the Financial Conduct Authority (FCA) and applying the Consumer Credit Act, ensuring users receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise.  

Economic Secretary to the Treasury Tulip Siddiq said: “Millions of people use Buy-Now, Pay-Later to manage their finances, but the previous government’s dither and delay left them unprotected.

“We promised to take action before the election and now we are delivering. Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”

The new rules will allow the FCA to apply rules on affordability – meaning that Buy-Now, Pay-Later companies will have to check that shoppers are able to afford repayments before offering a loan, which will help to prevent people building up unmanageable debt.

Companies will also need to provide clear, simple and accessible information about loan agreements in advance so that shoppers can make fully informed decisions and understand the risks associated with late repayments.

Consumer Credit Act information disclosure rules will be disapplied so that the FCA can consult on bespoke rules that ensure users are given this information in a way that is tailored to the online setting in which Buy-Now, Pay-Later products are generally used.    

Buy-Now, Pay-Later users will be given stronger rights if issues arise with products they purchase, making it quicker and easier to get redress. This includes applying Section 75 of the Consumer Credit Act, which allows consumers to claim refunds from their lender, and access to the Financial Ombudsman Service to make complaints. 

Rocio Concha, Which? Director of Policy and Advocacy, said: “Which? has been a leading voice calling for the regulation of Buy Now Pay Later for years so it’s positive that new rules are coming in that should provide much-needed protections for users of these products.

“Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers.

“We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.”

Sebastian Siemiatkowski, Co founder and CEO of Klarna, said: “Congratulations to Tulip Siddiq and the government on moving quickly!

“They have been working with the industry and consumer groups long before coming into office. We’re looking forward to carrying on that work to put proportionate rules in place that protect consumers while fostering growth.”

Michael Saadat, International Head of Public Policy at Clearpay said: “We welcome today’s update from City and FinTech Minister, Tulip Siddiq, on BNPL regulation.

“It is encouraging that HM Treasury has listened to industry feedback and evolved the previous framework to ensure a more proportionate approach to regulation.

“We have always called for fit-for-purpose regulation that prioritises customer protection, delivers much-needed innovation in consumer credit and that sets high industry standards across the board.

“We will continue to support the Government and the FCA to deliver fit-for-purpose regulation that ensures consumers are protected in a way that supports the UK’s thriving FinTech sector.”

Chris Woolard, Author of the 2021 Woolard Review, which looked at change and innovation in the unsecured credit market, said: “Today marks a significant milestone for consumer-focused financial regulation.

“The proposed package of regulation would implement the recommendations of the Review and mean millions of people up and down the UK will benefit from stronger financial protection as they borrow using BNPL, especially the most vulnerable in society. The incoming regulation will also provide long-term certainty and standards for the market.”

The consultation will be conducted quickly – closing on 29 November – to reflect the urgent need for action to protect consumers.  

Final legislation is expected to be laid in Parliament in early 2025. Once the legislation is laid, the FCA will finalise the rules so they can take effect in 2026 – bringing clarity to the sector after years of uncertainty about how it will be regulated.  

This follows the Prime Minister saying he would remove regulation that needlessly holds back investment and growth. Today’s announcement brings in much needed regulation that stops people spiralling into debt.

Justin Basini, Co-Founder and CEO of The ClearScore Group said: “We welcome this consultation to bring Buy-Now, Pay-Later borrowers under the same protections and creditworthiness assessments as other mainstream financial products such as credit cards and loans.  

“It is a sensible step in ensuring that this new, important form of credit continues to provide much-needed flexibility for consumers while also managing any risks.”

Millions left teetering on a financial cliff-edge during the cost of living crisis, says Which?

Almost 8 million people have been overlooked during the cost of living crisis and are now on the brink of serious hardship, Which? is warning.

It comes as new research by the consumer champion identifies 15 per cent of the UK population who are more likely to have turned to credit and buy now pay later schemes (BNPL) during the crisis. These people are at risk of significant financial and mental harm in the months and years ahead as interest rates continue to rise.

Which? surveyed 4,000 people across the UK to find out how different groups of consumers are coping –  financially, physically and mentally – with the cost of living crisis. The research highlights that while the vast majority of consumers have been affected by the cost of living crisis, this pain is not felt equally.

The study identified six distinct groups of consumers who are experiencing the cost of living crisis in different ways. These groups are: ‘Drained and Desperate’, ‘Anxious and At Risk’, ‘Cut Off By Cut Backs’, ‘Fretting About the Future’, ‘Looking out for Loved Ones’ and ‘Affluent and Apathetic’.

While much of the government and policymakers’ focus has rightly been on supporting the ‘Drained and Desperate’ group – who are more likely to have household incomes of less than £20,000 and have already had to make severe financial cutbacks, such as skipping meals and not turning on the heating.

Outside of any universal support available like the government’s support for energy bills, this ‘Anxious and At Risk’ category has been largely overlooked.

The ‘Anxious and At Risk’ group contains 7.9 million adults – 15 per cent of the UK population. They tend to be from larger households with children at home and are struggling financially but have just managed to keep afloat by using credit.

However, unlike the ‘Drained and Desperate’ group, they are much more likely to have borrowed money to maintain basic living standards than to have cut back on essentials, such as food and energy.

Six in ten (59%) have increased their debt in the last six months – the highest amongst all groups.They are also more than twice as likely (36%) as the UK population (14%) to have used buy now pay later schemes.

With interest rates continuing to rise, it is only a matter of time before this group is unable to keep up this cycle of borrowing and fall into financial difficulty.

One woman from northern England in this ‘Anxious and At Risk’ group said: “I have to use credit to make ends meet and I worry about debt. I have no safety net for emergencies and I will have to work past state pension age.”

Four in 10 (38%) of this group have a mortgage or loan on their home and worryingly, one fifth (21%) of those with a mortgage are on a variable tracker mortgage – meaning their rates are hiked every time the Bank of England base rate rises.

The Bank of England has raised interest rates significantly in the last year in attempts to combat inflation, meaning those on fixed-rate mortgages who are remortgaging this year will also be faced with massive hikes to their mortgage payments. This could be a major tipping point for ‘Anxious and At Risk’ households.

It is also hugely concerning that millions are heavily relying on Buy Now Pay Later schemes. Previous Which? research shows that many BNPL users do not realise they are taking on debt or consider the prospect of missing payments.

The government must not delay plans to introduce changes to the BNPL industry and ensure that consumers are given stronger safeguards to protect them. This needs to include greater marketing transparency, information about the risks of missed payments and consumer credit checks.

At such a difficult financial time, businesses must also do everything in their power to ease pressures on household budgets. Which? is calling on essential businesses – energy firms, broadband providers and supermarkets – to do more to help their customers and ensure they are providing value for money.

For example, supermarkets need to make budget line items that support a healthy diet widely available – particularly in convenience stores.

Telecoms firms must cancel future mid-contract price hikes and energy firms need to ensure their customer service departments are fully staffed and able to support any customers who are struggling to make ends meet.

Rocio Concha, Which? Director of Policy and Advocacy, said:  “Our research reveals that almost eight million people have been left balancing on a financial knife-edge.

“Until now, the government and policymakers have rightly focused on supporting the millions who are already failing to make ends meet, but this ‘Anxious and At Risk’ group is a ticking time bomb.

They are far more likely to have relied on borrowing to make ends meet but with interest rates continuing to rise, it’s only a matter of time before they find themselves facing serious hardship.

“The government must help those most in need by tightening regulation on buy now pay later to stop unaffordable lending and ensuring essential businesses are doing everything in their power to ease pressures on household finances.”

Do you need help to deal with your debt? Granton Information Centre can help: call 0131 551 2459, 0131 552 0458 or email info@gic.org.uk

Never Never Land

Buy Now Pay Later regulations to be strengthened

  • Millions of people will be protected through strengthening regulation of interest-free Buy-Now Pay-Later credit agreements, under plans announced by the government today.
  • Lenders will be required to ensure loans are affordable and rules will be amended to ensure advertisements are fair, clear and not misleading.
  • UK Government will expand rules to cover other forms of unsecured short-term credit that pose similar risks to consumers, such as those used for dentistry work.
    Millions of people will be protected through strengthening regulation of interest-free Buy-Now Pay-Later credit agreements, under plans announced by the government today (20th June).

Buy-Now Pay-Later credit agreements can be a helpful way to manage your finances, allowing people to spread the full cost of a purchase over time. However, people do not currently have the usual full range of borrower protections when taking out this type of loan and they are rapidly increasing in popularity, resulting in a potential risk of harm to consumers.

Under plans set out by the government today it confirmed that lenders will be required to carry out affordability checks, ensuring loans are affordable for consumers, and will amend financial promotion rules to ensure Buy-Now Pay-Later advertisements are fair, clear, and not misleading. Lenders offering the product will need to be approved by the Financial Conduct Authority (FCA), and borrowers will also be able to take a complaint to the Financial Ombudsman Service (FOS).

Economic Secretary to the Treasury, John Glen said: “Buy-Now Pay-Later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.

“By holding Buy-Now Pay-Later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”

Today’s consultation response sets out the government’s proposals for regulation of the sector. Given its complexity, the government will publish a consultation on draft legislation toward the end of this year. Following this, the government aims to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

The government has also confirmed that other forms of short-term interest-free credit, such as those used to pay for dental work or larger items like furniture, will be required to comply with the same rules announced today, given the risks posed are similar and consumers should receive consistent protections from similar products.

These rules will apply to businesses who partner with a third-party lender to provide credit, and the government is asking for further stakeholder feedback to confirm whether they should also apply to online merchants who directly offer credit for the purchase of their own products.

Today’s announcement forms part of the government’s plan to grow the economy to tackle the cost of living. The Chancellor has provided £37 billion of support to help, including providing the eight million most vulnerable British families with at least £1,200 of direct payments this year – and giving every household right across the UK £400 to help with their energy bills.

Which? calls for stronger safeguards to warn shoppers of Buy Now Pay Later debt risk

Which? is calling for stronger safeguards to stop online shoppers from choosing Buy Now Pay Later to pay for products without knowing the risks, as new research from the consumer champion reveals many people do not think that they are taking on debt when using this payment method.

Buy Now Pay Later (BNPL) has soared in popularity in recent years as a way for consumers to pay for goods and services, with the biggest provider Klarna now boasting 13 million customers in the UK.

But Which?’s research, carrying out in-depth interviews with 30 typical BNPL users, has raised concerns that shoppers do not fully understand the risks of choosing a ‘pay later’ option at the checkout.

Many of the BNPL users interviewed by Which? did not think of BNPL schemes as a form of credit, meaning they could unwittingly be exposing themselves to serious risks of missing repayments, such as late fees, marked credit reports or referral to a debt collector.

Instead, participants described the schemes as a ‘way to pay’ or a ‘money management tool’, rather than a credit provider. One user said: “It allows payments to be spread out for budgeting. It made things possible which in one go would have been extremely difficult and I would have probably had to borrow money from elsewhere.”

Though BNPL schemes are a form of credit, they work differently to more traditional methods of borrowing such as credit cards. Not all BNPL schemes run hard credit checks, for example, and users can normally sign up to a BNPL scheme in a matter of clicks.

Which? research found it was precisely this speed and simplicity when selecting BNPL at the checkout that contributed to users’ misunderstanding. Another user said: “It seems really convenient and no hassle. It just asks a few questions so it doesn’t feel like you’re committing to a credit agreement.”

The research also revealed low engagement with BNPL providers’ terms and conditions. Most BNPL users said they either skimmed the T&Cs or simply ticked a box to say they had read them in full.

As a result, some users had a limited understanding of the consequences of missing payments, and the safeguards and checks carried out by BNPL providers. Some participants were not aware there were late payment fees at all.

Throughout the research, Which? also found that BNPL users do not consider the prospect they might struggle to make repayments. In fact, using BNPL schemes made some consumers feel less concerned about making purchases they would not otherwise view as necessary or affordable.

“It softens the blow psychologically. It almost doesn’t feel like I’m blowing £100 on shoes,” said one participant.

Concerningly, many of the participants wrongly assumed the schemes were regulated. “I am surprised, I am shocked, they should be regulated. If you have a service that is not regulated you have no protection for consumers,” one participant said.

This lack of understanding around BNPL products is particularly concerning given previous Which? research that found people are more likely to be using BNPL at stressful and challenging times in their lives.

Missing a credit repayment or bill or experiencing a major life event – such as getting married, having a baby, moving home or being made redundant – increases the odds of using BNPL by around a third (38% and 35%, respectively).

That is why Which? is calling for stronger safeguards to protect consumers, including steps in the checkout process to ensure people understand they are borrowing money when using BNPL, and warnings about the risks of using the schemes.

Key information, such as payment terms, late fees and the potential consequences of missed payments, should be communicated at the point of transaction to help consumers make informed choices. Given the immediate risk, BNPL providers should proactively make their key terms and conditions more accessible, rather than waiting for regulation.

Affordability assessment should also be carried out for all BNPL transactions ahead of regulation being introduced.

As the government’s consultation into regulation of the BNPL market closes, the consumer champion wants no delay in regulating these schemes to ensure that those who use it are properly informed and protected.

Rocio Concha, Which? Director of Policy and Advocacy, said: “Buy Now, Pay Later (BNPL) schemes can offer speed and convenience at the checkout, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments.

“That is why there must be stronger safeguards to protect consumers and warn about the risks of using the schemes. Payment terms, late fees and the potential consequences of missed payments should be communicated at the point of transaction.

“There must also be no further delay to plans for BNPL regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”

Buy now, Regret later?

Which? is calling for Buy Now, Pay Later firms like Klarna and Clearpay to be fully regulated to provide greater protection for consumers, as new research from the consumer champion finds concerning industry practices encourage people to spend more than they planned to.

The consumer champion’s findings show that these slickly designed, easy-to-access credit products are encouraging impulse buying, with nearly a quarter of BNPL users (24%) saying they spent more than they planned to because BNPL was available.

With one in ten (11%) BNPL users reporting that they have incurred late charges when paying this way, Which? is concerned about the dangers involved with this growing form of unsecured credit, particularly when the risks are not always made clear, and is calling for the financial regulator to be given new powers to fully regulate the BNPL industry to prevent consumers from being harmed.

The research suggests pushy marketing strategies, combined with sales features that make payment easier – such as ‘express checkout’ services on some retailers’ websites – could be driving people to overspend and leading to people falling into debt, a concern also shared by debt charities such as StepChange.

Which? also found that a quarter of BNPL users (26%) said they had not planned to use this type of payment option until it popped up at checkout, while two in ten (18%) said they used BNPL because they were offered a discount to do so.

One in ten (13%) also said they used it by accident because it was selected as the default payment option at checkout. One survey respondent said: “I was tricked into [using] it because the box was already ticked”.

BNPL firms also advertise heavily on their partners’ websites. Which? looked at 80 of these sites and found the largest BNPL ads take up as much as 80 per cent of the screen, with fashion retailers most likely to carry these prominent ads.

These factors are evidence of the firms’ application of consumer psychology to drive sales, a strategy one BNPL provider has promoted to its retail partners.

In 2017, Klarna, one of the leading BNPL firms in the UK, commissioned a study with the University of Reading into online shopping behaviour. The report, intended for partner retailers, explains how to design ‘customer journeys’ that will persuade people to make ‘emotional’ purchases instead of ‘logical’ ones.

However, as Which? research shows, these frictionless customer journeys can lead to shoppers spending more than they can afford, without necessarily being aware of the risks.

41 per cent of people in the Which? survey who were aware of BNPL either did not believe or did not know that missing a payment could lead to the BNPL firm passing your debt on to a debt collection agency.

As a result of its findings, Which? is now calling for providers of this type of BNPL service to be regulated by the Financial Conduct Authority.

In its submission to the regulator, the consumer champion said that, while supportive of innovation, it believes that the BNPL market must have consumer protections in place in line with other regulated unsecured credit products.

Giving the FCA the powers to regulate the BNPL market would allow it to more effectively monitor how BNPL firms treat consumers, and if necessary, take action to prevent consumers from being harmed.

Jenny Ross, Which? Money Editor, said: “While Buy Now, Pay Later services offer speed and convenience at the checkout, our research shows their design makes it far too simple for shoppers to spend more than they were intending.

“This could lead to people building up debts that they may struggle to pay back, which is particularly concerning if they don’t understand the risks of using this type of product.

“Given that many people’s finances are stretched now more than ever, we believe that the FCA needs to regulate this market to ensure consumers are not harmed and that action can be taken if these firms are treating customers unfairly.”

A spokesperson for Klarna responded: “While we cannot speak for the sector as a whole, it is wholly incorrect to claim that Klarna uses ‘pushy marketing strategies’. All Klarna customers are provided with our terms and conditions, which clearly outline the potential consequences of non-payment.

“If a customer misses a payment, we will proactively contact them to remind them via text, email, in-app notifications and letters. Klarna will only refer unpaid debts to a debt collection agency as a last resort after a period of several months.

“Klarna is fully engaged with the FCA review of the unsecured credit market.”