The ‘buy now pay later’ sector must be regulated in order to protect vulnerable consumers, says StepChange

StepChange said that people with two BNPL loans are twice as likely as all adults to report difficulties in keeping up with their household bills and credit repayments.

StepChange is urging the Government to “proceed at pace” with regulating BNPL in the same way as other forms of consumer credit.

Last year, the Government announced its intention to bring unregulated interest-free BNPL products into regulation given the potential risk of “consumer detriment”.

The Woolard Review, published in February last year, identified areas of concern as the market grows, including poor consumer understanding of products, a lack of affordability assessments and inconsistent treatment of people in financial difficulty.

There are also concerns about the potential to create high levels of indebtedness with some people making multiple BNPL purchases.

The Woolard Review recommended that BNPL be brought within the scope of Financial Conduct Authority (FCA) regulation and, alongside this, the Government announced its intention to regulate.

Phil Andrew, the chief executive at StepChange, commented: “Even interest-free credit can and does cause financial difficulty, as we know all too well as a debt charity.

“BNPL is deliberately marketed and presented – often to less financially experienced consumers – as a means of payment rather than as a form of credit, which is what it really is.

“It is marketed not just for lifestyle spending, but for essentials such as groceries or school uniform.

“There is currently very little friction to prevent consumers building up significant amounts of cumulative BNPL debt, so it’s vital that regulation swiftly brings this rapidly growing lending market into line to ensure that consumers are better protected from the risk of financial difficulty.”

The size and impact of BNPL in the market is being driven at least to some degree by a “race for growth”, StepChange said.

The charity said: “Economic commentators have noted that this investment is likely to have been made with a view to acquiring a large customer base and future business models such as operating an e-commerce platform.

“The value of customer acquisition may have affected the willingness of some firms to knowingly or otherwise engage in practices that are detrimental to consumers, such as relatively relaxed approaches to creditworthiness and affordability assessments.”

StepChange commissioned public polling from YouGov in October 2021 which found that 10 per cent of UK adults reported holding one or more BNPL debt and 30 per cent of those with a BNPL debt have two or more loans and 14 per cent three or more.

Around half (49 per cent) of respondents with a BNPL loan said they found it difficult to keep up with household bills and credit repayments, rising to 59 per cent among those with two or more BNPL loans.

StepChange is the UK’s largest debt advice charity and is contacted by around 600,000 people a year who need help with their finances.

The Treasury said the consultation, which has now closed, set out policy options to achieve a proportionate approach to regulation of BNPL.

Last year, Martin Lewis, founder of MoneySavingExpert.com, said: “BNPL isn’t automatically a bad thing to do. Done right, used right, it’s interest-free, and can be a useful tool to help people spread costs.

“However, what’s most telling is it is sold to retailers as an easy way to get people to spend more – this, combined with the fact it is most popular amongst younger adults, is a big red flag. So it is vital to get this regulation right.”

The Government has sought views on where it should draw the boundary for regulation of BNPL products, also bearing in mind other types of short-term credit.

Gary Rohloff, managing director and co-founder of BNPL provider Laybuy, said recently: “We have always welcomed proportionate regulation and have sought to create the highest standards across the sector… BNPL is becomingly increasingly popular and I think it is only right we seek the highest standards across the industry.”

A Clearpay spokeswoman said: “Consumer protections are at the core of our product, and we already go above and beyond many of the measures proposed by the Government.”