Over 70 MPs have joined Martin Lewis, of Money Saving Expert, to call on the Government to protect consumers and regulate the Buy Now Pay Later (BNPL) industry – which has thrived during lockdown.
Buy Now Pay Later schemes allow consumers to purchase goods without upfront payments, spreading costs over several weeks.
Helen Hayes MP for Dulwich and West Norwood said: “With one in four shoppers using Buy Now Pay Later companies in the run up to Christmas, it’s vital we act before this becomes another ‘Wonga-style’ scandal.
“These companies make it easier to overspend online because the costs appear lower as they are spread out.
“However, with an extremely unstable economy and rising redundancies, what seems affordable in one month may not be in the next.
“Currently consumers are unable to complain to the Financial Services Ombudsman about these companies as they aren’t regulated by credit laws.
“That’s why I’m joining MPs from every party calling for the Financial Conduct Authority to step in before it is too late and regulate these firms to protect consumers from racking up unaffordable debt.”
Companies such as Klarna and Clearpay have seen increased spending levels over the last year – sometimes using social media influencers to promote their products by encouraging their followers to spend more.
BNPL schemes are being used 35 per cent more often now than before the pandemic and 27 per cent of users state this was because they could not afford to make the purchase outright. according to research by Compare the Market.com
Currently these companies do not have to abide by Financial Conduct Authority rules due to a regulatory loophole because they don’t charge interest – yet there is growing evidence of the harm their practices are causing to consumers who are getting into debt committing to higher spending overall as a result of using these companies.
In August last year, Labour & Co-op MP for Walthamstow, Stella Creasy made a complaint to the Advertising Standards Authority (ASA) regarding a number of adverts by Klarna which involved social media influencers encouraging followers to use Klarna to buy products to ‘improve their mood during the coronavirus lockdowns’ – the ASA upheld the complaint on December 23, 2020.
Martin Lewis, founder of MoneySavingExpert.com, said: “Buy now, pay later shouldn’t be sold as a lifestyle choice, something cool, or a new high-tech way to pay.
“It should be seen for what it is – a debt.
“The ASA is right to rule on the back of Stella Creasy’s complaint that ‘mood-boosting’ advertising for a credit product, often targeted at younger adults, is wholly inappropriate”.
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