Regulation of Buy Now Pay Later industry is long overdue

Regulation of the buy now pay later industry is long overdue says Chris Canham, CEO of Hoot Credit Union based in Bolton and Bury.


More than 1 in 10 consumers plan to put Christmas on credit using BNPL apps.


Millions of people use Buy Now, Pay Later firms, such as Klarna and Clearpay, when shopping online or in store. Managed correctly, they can be a cheap and quick way of accessing credit. But research shows many users aren’t aware that if something goes wrong, you face late fees, and, increasingly, marks on your credit file.


Hoot members tell us that they are increasingly being caught in the trap of signing up to BNPL deals to fund Christmas, and then face multiple and unaffordable repayments in January. Online shopping just five or six times for Christmas gifts can accumulate a hefty repayment commitment without realising the consequence of having to repay, or understanding that Buy Now Pay Later is a debt that will appear on a credit report. And debt charities have argued that BNPL companies encourages people to buy things they can’t afford.


The Financial Conduct Authority plans to bring this up until now unregulated practice under regulatory rules including compulsory affordability checks and offering clear and accessible information, including making it clear that BNPL is a debt.


Using a credit union save and borrow scheme to spread the cost of Christmas is a good way to pay for the cost this year, and save for next. A report by the Fairbanking Foundation says that getting into a good savings habit, particularly by those most financially vulnerable is the best course of action to cover those big-ticket items.


“Save as you borrow” (SAYB) is the practice of credit unions to encourage their members to put an amount into a savings account as part of making a loan repayment, meaning that when the loan is repaid, there is a savings pot to call upon to help the cost of next Christmas. At Hoot 84% of new borrowers are saving for the first time.


To find out more about how credit unions can help people spread the cost in an affordable and accessible way go to www.wisewithmoney.org.uk

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25 Oct 2024

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