Britons are increasingly turning to unregulated “buy-now-pay-later” credit options to cover their expenses, according to the Financial Conduct Authority (FCA). The FCA, the UK’s financial watchdog, revealed that around 27% of UK adults, or approximately 14 million people, have used buy-now-pay-later (BNPL) loans at least once in the six months leading up to January 2023. This is a significant increase from the 17% recorded in the 12 months prior to May 2022.
BNPL loans are short-term unsecured loans offered by companies to shoppers purchasing goods, usually clothing and other retail items. While these companies are not currently regulated by the FCA, the watchdog has utilized consumer rights law to introduce fairer contract terms. In February, the government also presented draft legislation to regulate the BNPL business.
The FCA’s latest Financial Lives survey has highlighted concerns regarding the potential risks associated with BNPL loans. The study revealed that frequent users of these loans were more likely to face financial difficulties and miss payments on bills or credit commitments. The rising interest rates set by the Bank of England have exacerbated the issue, making credit more expensive for consumers.
The FCA particularly expressed concerns about the contractual terms provided by PayPal and QVC. It stated that some of these terms put customers at risk of harm. As a result, both companies have voluntarily made changes to their contract terms to enhance clarity and fairness. In 2022, the FCA also compelled Clearpay, Klarna, Laybuy, and Openpay to modify their contracts.
Sheldon Mills, the FCA’s executive director for consumers and competition, emphasized the importance of consumer protection in this area. While acknowledging the potential benefits of BNPL loans when used responsibly, Mills stated that adequate protections and sufficient information must be provided to consumers, particularly those in vulnerable circumstances.
The increasing popularity of BNPL loans reflects the ongoing cost of living crisis faced by many in the UK. With rising living costs and higher interest rates, consumers are seeking alternative methods to finance their purchases. However, the FCA’s concerns highlight the need for safeguards to protect consumers from potential harm. As the government’s draft legislation moves forward, it is expected to bring greater oversight and regulation to the BNPL sector.
More detail via Daily Mail Online here… ( Image via Daily Mail Online )