One in 10 shoppers using buy now, pay later services have been chased by debt collectors, warns charity
One in 10 shoppers using buy now, pay later (BNPL) services have been chased by debt collectors, rising to one in eight young people, according to new research from Citizens Advice.
The charity's data also shows that of those who were referred to a debt collector for missed BNPL payments, 96% experienced at least one negative consequence. This included having sleepless nights, avoiding answering the door, borrowing money to repay the debt or their mental health getting worse.
Citizens Advice's findings come after the Government announced in February that BNPL would be regulated – though there's been little progress since, with a proposed consultation yet to be published.
MoneySavingExpert.com and its founder Martin Lewis, along with other campaigners, have long called for the "explosive" industry to come under the financial watchdog's eye to protect consumers. In December 2020, Martin gave evidence to the Treasury Committee where he called for regulation at "maximum speed".
With BNPL, instead of paying at the till or online checkout, the BNPL firm pays the retailer for you. You then agree to pay the BNPL firm back over a few weeks or months, meaning you can spread your costs. It's interest and fee-free, so it can be a cheap and easy way of accessing credit if managed correctly – but we've long warned that missing a repayment can lead to problems. See our full Buy now, pay later guide for more info. If you're struggling with repayments, see our Debt Problems guide.
Concern shoppers aren't given enough information at check out
As part of its investigation, Citizens Advice conducted mystery shopping at 100 leading retailers and found that:
- 38 offered BNPL, with 22 offering more than two BNPL options. This meant there were a total of 74 BNPL checkouts.
- Not a single one of these checkouts warned people they could be referred to debt collectors for missed payments. Instead, this was only flagged in the terms and conditions on a separate page, if at all.
- Only 11% of the checkouts warned shoppers they were taking out a credit agreement. The remaining 89% put this information in the small print or terms.
Citizens Advice said it's calling on the Treasury to urgently regulate BNPL as it fears shoppers have been left unprotected and ill-informed during the rapid expansion of the sector.
Dame Clare Moriarty, chief executive of Citizens Advice, said: "The sheer number of shoppers facing debt collection is startling. We know from our frontline advisers just how much stress this can cause. The buy now, pay later industry has exploded and we need consumer protection to keep up with the changes in the way we live. We hope the Treasury can keep pace."
What does the Government say?
A Treasury spokesperson said: "Buy now, pay later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular. By stepping in and regulating, we're making sure people are treated fairly and only offered agreements they can afford."
What do BNPL firms say?
Clearpay, Klarna, Laybuy and Openpay, four of the biggest BNPL providers in the UK, all told us that they only refer customers to debt collectors as a last resort.
A Clearpay spokesperson said: "It is important to note that when we pass on customer information to the agency, we retain full control of the customer relationship, do not report to credit rating agencies and we never share customer information with aggressive doorstep collectors."
Alex Marsh, head of Klarna UK, added: "At Klarna we only ever use debt collection agencies to help us contact customers we are unable to reach and we do this on fewer than 1% of orders. The debt collection agencies we work with are all Financial Conduct Authority authorised and will only contact customers by telephone or email and do not use bailiffs."
A Laybuy spokesperson said: "When a debt is referred to a debt collector, we only ever refer outstanding purchase price of the product. Late fees, which are limited to a maximum of £24 for a single order, are never passed to a debt collector. Laybuy also pays all the cost for debt collection."
Georgina Whalley, interim UK chief executive and group chief marketing officer of Openpay, added: "We refer some outstanding arrears to a third party, but Openpay customers are only contacted via SMS, email and post – never in person."