UK Regulators Scrutinize Buy Now, Pay Later Firms
Firms like Klarna offer shoppers the ability to pay for items in installments or even defer payments for up to 30 days. Major country-wide retailers now offer these services, hoping to attract more younger customers. And it’s working. Buy Now, Pay Later services saw a fourfold increase over the past year. However, the Financial Conduct Authority (FCA) has decided to regulate these as they could lead to the accumulation of massive consumer debts.
Concerns over looming debt growth
The FCA has cited how easy it would be to accidentally build-up thousands of pounds in debts by using Buy Now, Pay Later services. An in-depth review of the convenient payment services found that one in 10 people who use them also have debt arrears in other places. Given this concern, the FCA will now regulate the sector. Buy Now, Pay Later services are currently used by 5 million people in the UK, with sales totaling £2.7bn just last year. Regulators intend to make sure clients are only provided offers that they can afford. John Glen, Economic Secretary to the Treasury, has said that by stepping in, they would ensure clients were protected and treated fairly.
Gary Rohloff, director and co-founder of LayBuy, believes there is already enough regulation and that there should be a balance among protecting consumers and upholding the services’ innovation and maintaining its simplicity.
Companies like Klarna, ClearPay and LayBuy don’t charge interest on delayed payments. Instead, they charge a fee to the retailer or the client in some instances. Thanks to this, clients can enjoy some extra time before they actually have to pay for their products. Buy Now, Pay Later services consider themselves to be payment providers rather than credit firms. And with that, the services are not yet subject to the same level of regulation as traditional creditors such are credit card or loan companies. In order to lend, traditional credit providers are required to get FCA approval and the providers must conduct affordability checks.
The Woolard Review, a wider report into the credit sector, made some important recommendations concerning those who face debt troubles. The report suggested that there should be more services that fund free debt advice in the UK, especially in in light of the pandemic. It was also suggested that there should be more support for people struggling with payments, along with calls for widespread reform and alternatives to expensive short-term debt.