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Buy Now Pay Later firm misleads customer and negatively affects credit score

Posted on in Business News , Cycles News

Following on from the ACT mini-series, Choosing the right finance provider, avoid the pitfalls, a recent story published on BBC news shows how a popular finance provider misled a 21-year-old student which ended in her credit score nearly halving.

Erin Phillips considers herself well organised with monthly payments set up to pay off credit card bills and her car automatically. However, when using a retail finance firm that has a popular buy now pay later option to buy clothes online, try them on, and pay 30 days later, she found herself to be improperly informed in terms of payments.

She had missed a few payments without realising that this could negatively affect her credit score, which banks and credit card companies use to decide whether or not to lend to people. Upon missing the first payment, Ms Phillips received a letter like this from the company:


The student says that the email was not very informative and that if she had known the purchases made through the retail finance firm could affect her so much then she would not have used it.

'Misleading ads'

Multiple debt charities, including Stepchange, the Money Advice Trust, the Debt Support Trust and Christians Against Poverty, are calling on buy now pay later firms to be better at explaining risks to customers' finances in their adverts.

Stuart Carmichael, chief executive of the Debt Support Trust, described some buy now pay later adverts as "misleading".

The firm that affected Erin Phillips has a popular product called "Pay later", whereby customers have 14 or 30 days to pay off shopping they've bought online, with no added interest. For customers using this service, unpaid bills can be marked on their credit score and passed to a debt collection agency. These details were not included in the company's recent advertising campaign.

'Popular with young people' 

The firm partners with many companies that are popular with young people including Asos, H&M and Topshop. It also uses Instagram influencers and Love Island contestants that again have a young following. There are concerns that young people might be encouraged to take on debt using this company just to afford some new make-up, or a dress for a night out.

According to the BBC, under-25s made up 14% of those seeking help from the charity Stepchange in 2018, with an average outstanding debt of more than £6,000.

Sarah Pennells, editor of the consumer finance website Savvy Woman says "The whole point of retailers signing up with Klarna or companies like this is that people buy more. And some of those people probably shouldn't be buying more".

The advice given by Ms Pennells is "If you're thinking of using buy now, pay later, ask yourself if you'd still buy the item if you didn't have this option".

Find out more

Read the full BBC story here, which includes information on where those struggling with debt can find advice.

It may also be worth having a recap on the ‘Avoid the pitfalls' mini-series the ACT published in April 2019 which answered the trade's questions about selecting the most suitable retail finance provider. Key topics examined were why low rates can equal lost sales, the importance of checking the finer details of your agreement and why you should identify who actually lends the money when selecting your provider.

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C 2 Zero Limited t/a ActSmart & Ride it away is authorised and regulated by the Financial Conduct Authority 657829.



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