Consultation launched to bring BNPL providers under regulation
Posted on in Political News
trendy Buy Now Pay Later (BNPL) services continue to grow in popularity
across the UK, a charity has warned that using these non-regulated
services can be like "slipping into quicksand".
Before we go on, the point needs to be made that Retail finance, when
used correctly, is a fantastic payment option for both retailers and
consumers and it should continue to be so. It is specifically the BNPL
providers that the consultation is investigating as this payment service
is not currently regulated within the UK.
Many BNPL products are becoming increasingly popular among Gen Z's and
Millennials, it is offered widely online by fashion retailers whereby
allow shoppers to split payments at checkouts or pay 30 days later
interest-free.
However, the growing levels of debt being created by these unregulated
payment services has been an increasing cause of alarm for some time
now, with concerns raised among over 70 MPs, MoneySavingExpert.com founder and TV presenter Martin Lewis OBE and a multitude of debt charities. Even Pablo Escobar's brother has had an issue with popular BNPL Klarna.
Consistent campaigning has now led to the Treasury launching a
consultation into bringing the sector under regulation. The Treasury
said that the consultation "sets out policy options to achieve a
proportionate approach to regulation of BNPL".
Martin Lewis, founder of MoneySavingExpert.com, summarises the issue by
saying retail finance "isn't automatically a bad thing to do" and that
when done right it "can be a useful tool to help people spread costs."
ActSmart's Retail finance scheme
(not BNPL) applications are now experiencing the similar growth
patterns as seen prior to Covid-19.
It is key for retailers to source providers that are correctly regulated and undertake credit checks on any potential customers to ensure that they can comfortably pay off any debts.
"A really easy way to fall into problem debt".
In February an in-depth report was undertaken by The Woodlard Review,
which found use of BNPL services had quadrupled in 2020 and that 1 in 10
customers had existing debt arrears. The report called 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.
"BNPL borrowing can be like quicksand - easy to slip into and very
difficult to get out of," Citizens Advice director of policy Matthew
Upton said.
"We've helped many who have slipped into trouble, including one sent a
debt collection letter over a £10 purchase. Another relies on BNPL to
buy things such as their children's school uniform, but cannot afford
the repayments.
"Over half of young people who have used BNPL in the last year struggled to make a repayment."
No obligation for BNPL providers to conduct creditworthiness assessments
The newly launched consultation states that consumers should be
adequately and fairly protected from detriment, and be able to access
dispute resolution regarding the conduct of lenders.
The government is seeking views on where it should draw the boundary for
regulation of BNPL products, also bearing in mind other types of
short-term credit. It also wants to know whether people believe current
requirements on BNPL merchants and lenders around advertising and
promotion are sufficient.
This lack of FCA regulation has created concerns about inconsistencies
with how BNPL agreements are reported on people's credit files. There is
no obligation for providers to conduct creditworthiness assessments as
part of taking on new customers or when entering into individual
agreements, the consultation document said.
The government wants to hear views on the role of creditworthiness
assessments as part of a proportionate approach to regulation.
Peter Tutton, StepChange head of policy, research and public affairs, said: "We hope the introduction of regulation can be implemented at pace, given the rapid rise of BNPL."
Find a finance provider you can trust
ActSmart, member of the Independent Retailers Confederation
(IRC), has previously raised concerns about the improper regulation of
BNPL providers such as Klarna, Openpay and LayBuy and the risks that
they bring to potential customers.
Some debt charities argue that it is the retailer's responsibility to
educate their customers of the risks being undertaken when committing to
any BNPL payments. With a retailer's reputation at stake, as well as
the wellbeing of their customers, it is imperative that businesses find a
finance provider that they can trust and that is correctly regulated by
the FCA.
ActSmart have created a mini-series - Choosing the right finance provider, avoid the pitfalls - which assists retailers by highlighting what to look out for when choosing the right finance provider for you.
Train your staff to deliver finance effectively
Retail Finance Training,
brought to you by Indie Retail Training, is a distance learning course
ensuring your business sells using finance effectively and compliantly.
This course is designed for all owners and employees in a business that
either currently, or plans to, offer retail finance as a payment method.
The course will teach you how to legally promote and use retail finance
in-store, online and in all other forms of media. As well as covering
the legal details this course also aims to make sure you maximise each
sale using retail finance.
You can sign up and access a demo of the training site for FREE: https://demo.indieretail.training.
For the full course, ActSmart subscribers receive preferential pricing with up to 50% off. Find out more about the full course.