Buy-now pay-later complaints jump as shoppers rely on providers amid cost of living crunch

Almost 15 million consumers are using buy now, pay later credit, up by nearly a quarter from a year ago.

Shoppers are filing more complaints about buy-now pay-later (BNPL) firms to the UK’s financial complaints body as Brits turn to firms like Klarna and Zilch to fund their spending in the cost of living crisis.

Complaints to the Financial Ombudsman Service (FOS) involving BNPL firms jumped 36 per cent to 220 last year, according to figures obtained via a Freedom of Information request by lending firm Creditspring show.

The increase in complaints – which sat at 162 in 2020 – reflects a boom in usage of the products.

Some 4.1m used the products for the first time in 2022 as rising prices squeezed shoppers spending power, according to data firm Equifax.

And last month, it was revealed that nearly £1 in every £8 spent online in January was sourced via buy-now pay-later providers, according to research by Adobe Analytics.

However, BNPL firms are yet to be regulated and currently sit outside the FOS’s remit, meaning their complaints are technically falling on deaf ears.

The Treasury confirmed plans last week to bring the sector under the remit of the Financial Conduct Authority, which will be granted powers to withdraw authorisation from firms.

But, Neil Kadagathur, chief of Creditspring, said it will still take time for the new rules to be implemented.

“Given it has taken two years to reach this point, we’re unlikely to see the much-needed consumer protections appear anytime soon,” he said.

Under the draft rules, BNPL firms will be brought into the remit of the FOS, which will have the powers to intervene in disputes between shoppers and BNPL lenders.

However, the suitability of the body to police the sector has come under scrutiny from some quarters. Huge case fees at the FOS means BNPL firms may be incentivised to pay off any disputes before they are investigated and scrutinised.

“Because the case fee is so high, there is a strong incentive to just give the customer £50 rather than see this go all the way up the chain,” a senior BNPL executive has been reported to have said.

“This isn’t a bad outcome for the consumer, but it takes away a key element of the regulator’s duty, which is visibility of problems in the market, because the FOS doesn’t actually see any of the customers’ complaints.”

The FOS said last year that bringing firms into its remit is an important step and it will reach a “fair and reasonable decision” based on all the circumstances of a particular case.