Why the Government must not go back on buy now, pay later pledge

In 2022, it’s estimated that 10 million consumers used BNPL services. For most, the experience was hugely convenient. If a product or service’s upfront cost is prohibitive, then paying after a short delay or spreading payments over three months can be a really effective way to balance budgets.

But it’s not convenient for everyone. It is not, by any means, a risk-free option, despite how straightforward some providers can make it seem. Ultimately it’s still a debt, and just like other credit services, users can be charged for late fees, have their credit ratings damaged or even face debt collectors if they miss payments.

To make matters worse, Which? research has found that, despite customers being bombarded with various BNPL options at the checkout, the level of information warning of the dangers of missed payments remains scant. That’s especially concerning when you consider the characteristics of the typical BNPL user, which we found to be: more likely to have experienced a major life event, such as the loss of a family member, or to have defaulted on another form of credit or household bill than non-BNPL users.

Our research found that those who are more likely to use BNPL also believe they lack access to other forms of credit, and to report attitudes that suggest they may be more vulnerable to impulsive and unaffordable borrowing.

Overspending on items you wouldn’t normally be able to afford upfront can also lead to excessive debt, which can not only affect consumers’ ability to buy other financial products, but cause emotional distress and could force them to cut back in other areas of spending.

As it stands, should something go wrong with a purchase, consumers don’t have the same protections offered for other credit purchases under the Consumer Credit Act.

Organisations such as Which?, Citizens Advice and even major BNPL providers such as Klarna have long called for regulation of the industry so consumers can have the same protections. And the financial regulator, the Financial Conduct Authority (FCA), has been warning of the risk to consumers for years. The influential Woolard Review on unsecured credit in February 2021 stated there was ‘an urgent need to regulate all buy now pay later products’ given its ‘significant potential [for] consumer harm.’

Shortly after the publication of that report, it appeared that the government agreed with the FCA. Last June, as part of plans to regulate BNPL, the government announced that BNPL providers would have to carry out affordability assessments of users, similar to those done by credit card or personal loan providers. The Economic Secretary John Glen MP also stated that providers’ advertising must be ‘fair, clear and not misleading’.

That’s why it’s extremely concerning to see reports that the government is considering shelving plans for effective regulation. Now, more than ever, when millions of households are bearing the brunt of the rising cost of living and turning to credit to pay for things, they need greater protections. A government serious about looking after people under pressure shouldn’t allow them to borrow money they can’t afford and potentially spiral into debt.

Having come so far, the government must now not backtrack on the commitments it has made to consumers over several years and ensure stronger safeguards and protections are brought in when using BNPL schemes. With pressure due to the rising cost of living likely to remain a challenge for many people, and the likelihood that more will turn to using credit to pay for everyday items, it cannot come soon enough.