Buy Now Pay Later rules should go further, say debt charities

The Financial Conduct Authority has confirmed its new requirements in reform of 'Buy Now, Pay Later' (BNPL) credit offers.

Buy Now Pay Later borrowing includes catalogue credit, store cards and retailers which offer finance at the point of sale (which can be in store or online).

The measures will require retailers to present BNPL offers in a clear and balanced way, give adequate explanations of the costs and potential negative consequences, and prompt people when the 0 per cent interest period is due to expire to give them chance to repay the balance in full before interest is charged.

Debt charities say BNPL services are widespread, and are a factor driving both store card and catalogue debts. Around 12 per cent and 34 per cent of StepChange clients have these types of debts respectively.

Peter Tutton, Head of Policy at StepChange Debt Charity, said: "The FCA’s changes are modest but welcome, though whether they will fully achieve the objective we would like to see that credit should always be “bought rather than sold” remains questionable. When people’s eyes are on the goods they want to buy, and the credit is being offered through the retailer, it is particularly important that the nature of the credit product being dangled as the means to the desired end is made unequivocally clear.

"It is positive to see the FCA banning the practice of backdating interest on any element of borrowing repaid within the borrower’s 0 per cent interest period. Looking ahead, we would hope to see the FCA take a closer look at the ongoing use of discounts and incentives. We would like the FCA to continue to scrutinise the evidence of consumer harm in this area and ensure consumers are protected against poor practice." 

Citizens Advice helped over 25,000 people with problems due to catalogue and mail order products last year. These debts are the second most common high-cost credit issue, after overdrafts, with which Citizens Advice helps people.

The charity supports more people with catalogue and mail order debts than those with other high-cost credit debt due to doorstep loans, payday loans or rent-to-own. These other forms of credit have been the subject of much greater investigation by the FCA.

The most common problem faced by people Citizens Advice helps with catalogue and mail order debts is dealing with debt repayments. This accounts for over 80 per cent of the problems that are brought to the organisation.

The use of these deals is more prevalent among people who are vulnerable due to their health or financial situation. Citizens Advice figures show:

• 54 per cent live in social housing
• One in three (33 per cent) are single parents

The charity provided evidence to the FCA’s Buy Now Pay Later consultation in March 2019.

Gillian Guy, Chief Executive of Citizens Advice, said: “Buy Now Pay Later borrowing can be a useful way for people to spread the payment for an item. But many do not fully understand the repayment terms involved in these deals.

“One of the problems we see is how interest is backdated at the end of the 'interest free' period. People can get into trouble as they don’t realise charges can be applied in this way

“The new rules won’t stop people being hit by these unexpected costs on unpaid amounts. To better protect people, the FCA should go further and only allow firms to charge interest once the promotional period ends.”

* StepChange debt charity https://www.stepchange.org/

* Citizens Advice https://www.citizensadvice.org.uk/

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