The UK’s top financial watchdog issued a warning over the use of buy-now pay-later products (BNPL) today as fresh data revealed Brits are turning to the products to ease the pain of a cost of living crunch.
The Financial Conduct Authority, which is due to clampdown on the sector this year, said that soaring inflation underlined the need for regulation of products offered by firms like Zilch and Clearpay.
The UK’s top financial watchdog issued a warning over the use of buy-now pay-later products (BNPL) today as fresh data revealed Brits are turning to the products to ease the pain of a cost of living crunch.
“The rising cost of living underscores the need for buy-now pay-later products to come into regulation,” an FCA said.
“It is vital the law, which sets our remit, adapts as the market innovates, so new products and services develop in ways that benefits consumers and so action can be taken if consumers are put at financial risk or treated unfairly.”
The watchdog is waiting for the results of a Treasury consultation before drawing up regulation, which would be published “in the coming weeks”.
It comes as data showed nearly one in 10 people have used BNPL schemes to cover essentials, while six per cent said they have bought groceries using BNPL, according to research for Hargreaves Lansdown.
BNPL firms’ offer of no fees and low interest rates can help customers offset one-off high costs but consumer groups have sounded the alarm over the rising use of credit products for essentials as the cost of living starts to bite.
Speaking about the announcement, Sue Anderson, head of media at debt charity StepChange, said: “The use of Buy Now, Pay Later services, as with any other form of consumer credit, to pay for essentials is extremely worrying, particularly given the rising number of people struggling due to the cost of living crisis,”
“These services are not yet subject to the same regulation as other forms of credit, which means that formal protection through affordability requirements and the way in which the services are promoted is currently lacking.
Anderson said it was “vital” the Government follows through on its commitments to regulate this sector “as soon as possible.”
Energy and debt groups also warned over the weekend that people are now looking to increasingly “desperate” measures to meet their bills, the Financial Times first reported.
Gemma Hatvani, founder of Facebook-based advice service service Energy Support and Advice UK, said some BNPL arrangements are simply “just delaying the inevitable”.
“It is really worrying,” Hatvani told the FT. “It’s going to cause massive problems.”
BNPL firm Zilch, which came under fire earlier this year for promoting its product as a means to buy food and takeaways, is offering households the option to pay off energy bills in four instalments over six weeks at zero interest.
But the firm claimed that credit cards posed the real danger to consumers rather than BNPL.
“With nearly £60 billion of debt sitting on UK credit cards, charging an average of 21% interest, and millions still using those cards to pay energy bills, the cost of credit from traditional providers is fundamentally unacceptable,” a spokesperson said.
“Over 3.4 million people in the UK currently use a credit card to pay for their monthly energy bills. Using a credit card and the average 21% interest rate ultimately creates an unintended price-hike on their personal cost of living.”
It comes amid a wider push from BNPL firms to tighten the guardrails as customers look for ways to lighten the load as the cost of living soars.
A spokesperson at BNPL firm Clearpay said last month the rising cost of living was “concerning”.
“We constantly review our inbuilt protections to ensure we safeguard our customers effectively during periods of economic uncertainty,” a spokesperson said.
“ We already pause accounts if a payment is late and our risk models adjust spending limits in real time depending on payment behaviour.”
