As HM Treasury consultation on BNPL closes, debt risk concerns remain

By Gaia Lamperti

2021 has been the year of ‘Buy Now, Pay Later’ (BNPL), with a boom in new consumers embracing this payment option and the industry hitting $100 billion in value. In the UK the market is particularly big, with more than 17 million customers who have already used a BNPL company to make an online purchase, and almost 1 in 10 people who were planning to do during the Christmas season, according to a Citizens Advice survey.

While BNPL has remained unregulated for long, contrary to any other form of consumer credit, due to the current size and presence of the industry the Financial Conduct Authority (FCA) had to do something. The UK regulator has been putting measures in place to raise awareness about the offers that are being promoted to customers, the role or absence of credit checks, the costs involved and understanding of the product by consumers.

Last October, the HM Treasury announced the start of a consultation to regulate the industry, with responses to be provided by the government by January 6th 2022.

Among the proposals set out by the regulator, there are for the terms of the deals to be clearly laid out before consumers agree to them and for retailers promoting the services to ensure people understand the risks. The consultation also suggested that section 75 of the Consumer Credit Act should apply, making BNPL providers jointly liable for the contract with the retailer in the same way that credit card providers normally are.

Consumer group Which? was among those calling for stronger safeguards after it conducted research which indicates that shoppers think of BNPL products as budgeting solutions rather than credit. “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,” states a blog on the group’s website. “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.”

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

Which? research found it is often the speed and simplicity when selecting BNPL options at the checkout that contribute to users’ misunderstanding. Some of them are not even aware that there would be late payments fees at all and therefore feel less concerned about making purchases they would not otherwise view as affordable.