BNPL firms to be regulated by the Financial Conduct Authority after warnings of "unseen debt"

Buy now pay later (BNPL) firms such as Klarna and Clearpay are to be regulated by the Financial Conduct Authority (FCA) after a report warned of the risk of people running into "unseen debt".

BNPL services allow people to defer payment for goods or pay in instalments. A Recent report for the financial regulator, The Woodlard Review, found use of BNPL services had quadrupled in 2020 and that one in 10 customers had existing debt arrears. The report calls for BNPL firms to perform affordability checks on shoppers and ensure customers are treated fairly, particularly those struggling with repayments.

Chris Woolard, who led the FCA review recommending regulation, said that although BNPL was convenient for some people, for others it was "a really easy way to fall into problem debt". 

The report shows that BNPL services were used by five million people in the UK for total sales of £2.7bn in the last year.  Following the report, the FCA said it would be easy to build-up unseen debts of £1,000 and will now begin to regulate the sector.

Economic Secretary to the Treasury John Glen said: "By stepping in and regulating, we're making sure people are treated fairly and only offered agreements they can afford - the same protections you'd expect with other loans."

 

Regulation comes after much campaigning

Amongst those campaigning for the regulation of BNPL firms was Alice Tapper, financial campaigner, who said that she had received hundreds of messages from distressed young people, particularly throughout the first lockdown, with one in six 18 to 24-year-olds having turned to buy-now-pay-later services. Tapper was delighted with the recent announcement that these firms are to be regulated and said the following on LinkedIn:

"8 months of campaigning, 250 case studies and 1 threat of legal action later (thanks Klarna!) and the FCA has concluded that buy now pay later needs to be regulated urgently.

As it stands, victims of fraud via BNPL products have been unable to seek the support of the Financial Ombudsman and shoppers as young as 18 are being advertised these products by influencers, with no risk wording. Today, BNPL is often a teenager's first encounter with credit.

It is reassuring that the FCA has identified the need for action and I'm delighted by Mr Woolard's recommendations. Regulation means consumers will receive the information and protection they deserve.

The FCA & Government now need to act fast to bring these recommendations into fruition. As Mr Woolard highlights, this is an urgent issue and there is no time for delay."

Labour MP Stella Creasy, also campaigned heavily for the regulation of these services, and wrote to both the Financial Conduct Authority (FCA) and the Advertising Standards Authority (ASA) to raise the issue. Stella Creasy previously campaigned against pay day loaners Wonga in 2014, which led to the FCA, the financial services industry watchdog, investigating Wonga and forcing it to write off 330,000 loans worth £220m and compensate 45,000 other customers. 

Creasy recently posted on twitter headlined "Why we need to stop the Klarnage", which went on to encourage people to discuss the growing issue with their MP, "A quarter of their customers have had to ask family or friends to pay back money, 1 in 10 are left struggling to pay rent." 

To add to the list, English journalist and television presenter, Martin Lewis OBE, most well-known for founding MoneySavingExpert.com, put forward his concerns about the growing popularity of BNPL providers. Speaking on BBC Radio 5 Live Lewis described the popular BNPL payment methods as "an explosive form of credit that's becoming quickly dominant".

The government has said that it would legislate as soon as possible, following consultation.

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