• Sat. Oct 29th, 2022

Regulator says 5 million people have used such services since the start of the Covid-19 pandemic

Feb 2, 2021

Borrowing & debtRegulator says 5 million people have used such services since the start of the Covid-19 pandemic
Buy now, pay later firms such as Klarna and Clearpay will be closely monitored by the UKs financial regulator after the use of such services nearly quadrupled during the coronavirus pandemic, raising fears over consumer debt levels.
The Treasury announced plans to bring the £2.7bn sector under the regulation of the Financial Conduct Authority after a four-month review by the former FCA interim chief executive Chris Woolard.
Companies including Clearpay, Laybuy and industry leader Klarna allow customers to stagger payments for products such as clothes and furniture with no interest or fees unless they fail to pay back on time.
Bringing them under the FCAs regulation means that firms will have to make affordability checks before lending and ensure customers are treated fairly, in particular those who are vulnerable or struggling to repay the loans. Under FCA rules, people will also be able to complain to the Financial Ombudsman Service if things go wrong.
The FCA said the use of buy now, pay later agreements nearly quadrupled in 2020 and is now at £2.7bn, with 5 million people using these products since the beginning of the coronavirus pandemic, which caused a boom in online shopping. It said this comes with significant potential for consumer harm. For example, more than one in 10 customers of a major bank using buy now, pay later were already in arrears.
John Glen, the economic secretary to the Treasury, said: Although the average transaction tends to be relatively low, shoppers can take out multiple agreements with different providers and the review found it would be relatively easy to accrue around £1,000 of debt that credit reference agencies and mainstream lenders cannot see.
With several buy now, pay later providers planning to expand to higher value retailers, or offer their products in store, the risk that consumers could take on unaffordable levels of debt is increasing.
The Treasury expects that after a consultation with the firms and others involved and legislation the FCA will be given formal oversight of the sector later this year. The government has come under pressure to act swiftly, after warnings from more than 70 cross-party MPs that buy now, pay later could be the next Wonga waiting to happen referring to the 2014 crackdown on payday lenders after they drove people into unsustainable debt.
Woolard said: Changes are urgently needed: to bring buy now, pay later into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic.
The FCA said free debt advice services needed secure, long-term funding as demand has increased to as many as 1.5m additional cases during the pandemic.