Resolver blog: Buy now, pay later and the role of regulation

4 min read
February 04, 2021

There comes a time where if you voice your concerns over certain practices again, and again, you wonder if it just becomes noise. This week, however, I was glad to see that interest free ‘buy now, pay later’ (BNPL) credit arrangements, managed by companies such as Klarna, Clearpay and Laybuy, are to come under the umbrella of the Financial Conduct Authority (FCA). 

I’ve been campaigning for transparency and greater regulation in this area, so I’m pleased that the Woolard review commissioned by the FCA has highlighted that while there are some positives around giving consumers choice on how to pay for goods, there is, the very real threat that such arrangements and how they are managed can expose consumers to harm.

Affordability – and accountability

Coming under the ‘we are regulated’ family will mean a number of things for BNPL providers, but for consumers, a main change is that there will have to be affordability tests to ensure that they can afford this type of agreement. Previously this wasn’t required, and while balances or indeed transactions (given the retailers that were offering these options) were unlikely to be that high on average, the set-up still paved the way for problems. 

The Woolard review found, among other things, that because the agreements were interest free, consumers didn’t give them the same scrutiny they perhaps might when, for example, taking out a personal loan. Equally, because BNPL agreements were not reported on credit files, it was easy – too easy, I would say – for a consumer to take out a number of agreements across different providers and different retailers and lose sight of the debt they were building up. 

Add to this the recognition that these providers were planning to expand their services into higher value retail outlets or purchases (so, more expensive products) and you could see the cliff edge looming for some consumers. Many I’m sure are already concerned about covering everyday expenses, so saw this type of deferral-style arrangement as an aid. 

What does this mean? Well, potentially some consumers will be less likely to go down this route if they are faced more starkly with questioning around whether or not they can afford it – but is this really a bad thing? Part of my issue with BNPL is the sheer ease to just sign up and for the reasons I state above the ease consequently for people to get out of control with keeping track of and managing their payments. In times like these, not only have we been driven even more to online shopping (for obvious reasons) but the temptation to be able to pay ‘in instalments’ or put things off for a short while is quite an easy one to succumb to, and in a system where it’s unclear where the responsibility lies when a consumer gets into issues paying things back, at least the move to regulation draws a line.

The news also means that if you have a complaint about BNPL, and it’s not resolved to your satisfaction, you can escalate it to the Financial Ombudsman Service. Previously, because interest free ‘buy now, pay later’ was an unregulated activity, consumers couldn’t pursue this route if their complaints were ignored, or not resolved directly with providers. This is quite a big move as there is the possibility of greater accountability without having to go down the route of courts, given retail as a sector in itself is not a regulated one. It also more clearly places the responsibility on BNPL mechanism providers to ensure fair treatment to consumers, and even more stringent consideration towards the vulnerable. 

It is worth bearing in mind none of this is going to happen overnight, but the expectation is now that it’s been announced, these providers should be preparing themselves for when everything does ‘kick in’. 

But has this solved everything that can go wrong with BNPL?

In essence, not completely. This is a big step, and a welcome one. But from the complaints we are seeing here at Resolver, some of the issues around a financial product being attached to a retail purchase still need to be considered as I’m not sure these would be solved by regulation. 

The biggest and most obvious example is the issue we’re seeing around refunds. Getting a refund in a timely straightforward manner is beginning to feel rarer than hen’s teeth, particularly since Covid-19 with online purchases.

But now imagine that because you’re under a BNPL agreement, you’re still seeing charges on your account because you ‘bought now and paid for it later’ for something you’ve actually sent back. This is something we’re seeing more and more concerning the complaints we’re getting about BNPL right now. 

I get that it’s a bit more complicated than this as payments in the main can start as soon as you’ve had something delivered – but for this to continue (and of course for you not to get those initial payments back without question) is quite frankly ridiculous. It is really not easy or clear who the consumer has to deal with to complain. This needs to be sorted.

The Woolard review brought to light a fair number of other recommendations – which the Government is in the process of reviewing. But for now, there is at least an ‘official’ route to redress, a line over accountability if something goes wrong and more checks in place to try and safeguard consumers from falling into a debt spiral that they will have trouble keeping track of, let alone manage. This is progress, and in the times we are in now, that is a positive.

We’re continuing to look at common – and emerging issues – surrounding buy now, pay later credit. If you have an issue with either your retailer or credit provider, use Resolver to make a complaint for free.

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