How better regulation of Buy Now, Pay Later could help protect its users.
I recently saw Buy Now, Pay Later referred to in an article as being in its ‘Wild West era’. Buy Now, Pay Later is still relatively new – but growing fast – and whilst it’s not as lawless as the old Hollywood films made the Wild West appear, there is certainly a need for some regulation, with the Financial Conduct Authority (FCA) looking to ride into Buy Now, Pay Later’s domain in the New Year.
Buy Now Pay Later (BNPL) is a financial product that is commonly offered at check out, whether you’re online shopping, or more recently in stores too. BNPL allows us to buy items using credit, and then typically pay for them through regular, interest free payments.
There’s been a lot of talk in recent years about regulating it better. In fact, CAP wrote our first response to a regulation consultation three years ago, back in January 2022. In 2021, the UK Government committed to regulating Buy Now, Pay Later, but this was put on hold – something we voiced our concerns about at the time. We’re pleased to see regulation of Buy Now, Pay Later is back on the agenda, and we’ve recently outlined our recommendations to increase protection for those buying through BNPL.
How does Buy Now, Pay Later work?
Buy now, pay later gives people the option to pay for items in regular, interest-free installments, usually in full 30 days later, or over three months. This can be appealing when you need to spread out the cost of an item, and knowing it’s interest free means the price you see is the total you’ll pay. But this is assuming you’re able to keep up with payments and don’t incur any late fees. It’s quick and easy to apply for, there are no credit checks and you can use the supplier’s app to keep track of payments.
However, there are some risks. These include hidden fees, the confusion of managing multiple accounts with different providers, and the lack of regulation protecting those who choose Buy Now, Pay Later. It also offers people a way to buy something that they can’t necessarily afford at the time, meaning people can find themselves in financial difficulty and debt as a result.
Why does Buy Now, Pay Later need regulating?
Buy Now, Pay Later is the fastest growing payment method in the UK. It is so easy to access, and can be a tempting option for being able to spread out the costs of things you buy. However, it is easy to lose track of what you’ve bought and the mounting balance if you’re unable to afford the payments. Whilst each Buy Now, Pay Later provider does give you a credit limit, being able to access credit across multiple providers means it is easy to overspend.
The risk of finding yourself in a position of having over-committed your spending, especially those of us with extra vulnerability factors, is real. Regulating Buy Now, Pay Later, and offering more to protect buyers is, therefore, crucial.
What will change if Buy Now, Pay Later becomes regulated?
Whilst we can’t say for sure what will be announced, we’re keen to see more protection in place for customers. This might mean more accurate affordability checks, better processes in place for those with extra vulnerabilities, or other policies that prevent people from getting into unmanageable debt as a result of Buy Now, Pay Later.
One change we’re likely to see is that Buy Now, Pay Later firms may have to offer affordability checks before offering you credit. This might limit how attractive Buy Now, Pay Later is to people who use it for a quick and easy way to buy, but it also means those who can’t afford it are protected from further debt. Some providers do offer a ‘soft’ credit check, but this would need to be much more accurate in order to prevent those who can’t afford to take out credit through Buy Now, Pay Later from doing so.
Firms would also have to monitor usage, to make sure people aren’t getting over-committed. In the past, the Financial Conduct Authority (FCA) has criticised organisations that rely on historical, potentially out of date information to decide if people can take out more credit. Regulation could mean that clear record keeping is prioritised, which is vital for accurate affordability checks and helping a customer’s case if they complain to the Financial Ombudsman Service.
Extra care will also be needed for vulnerable customers, making sure that once a firm is aware of a customer’s vulnerability, they get the support they need. Firms are going to have to put processes in place to identify and care for vulnerable customers.
Overall, regulating Buy Now, Pay Later improves the service offered to people and the protection surrounding their finances. With Buy Now, Pay Later being one of the reasons people can easily fall into unaffordable debt, we’re pleased to see these discussions being had and regulation on the horizon that will hopefully prevent some of this.
How do I manage my Buy Now, Pay Later accounts well?
It’s important to treat whatever you purchase through Buy Now, Pay Later as a debt, even if it is interest free. This is because you have to pay it back within a certain time, or face hidden late fees. When you’re offered the opportunity to use Buy Now, Pay Later at checkout, before you decide to go for it, ask:
Can I afford to take on more credit?
Do I understand what I’m taking on? Do I understand the terms and conditions?
What happens if things change and I can’t make the repayments? What impact will this have on my finances?
At Christians Against Poverty, we can see from years of experience that unregulated Buy Now, Pay Later is causing financial difficulty and encouraging people to get into unaffordable debt. No form of credit, no matter how easy or accessible, should cause people to fall into unmanageable debt. You can find out more about what CAP is campaigning for on this, and join our campaigning community to be a part of the change we’re fighting for across the UK. And if you’re in unmanageable debt, you can find out more about our free, expert debt help.
