Cost Of Living Bites As UK Charity Warns Of BNPL Risks

March 15, 2022
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One in 12 people turned to buy now, pay later (BNPL) to cover basic costs such as food and toiletries in the last six months, new research from Citizens Advice has found in a sign that the debate of whether the products are appropriately regulated is not going away.

One in 12 people turned to buy now, pay later (BNPL) to cover basic costs such as food and toiletries in the last six months, new research from Citizens Advice has found in a sign that the debate of whether the products are appropriately regulated is not going away.

The cost of living has become a rapidly rising issue in the UK in recent months due to inflation and, more specifically, supply chain problems. With a significant jump in energy costs expected from April, experts are already warning of the “biggest cost of living crisis Britain has faced in generations”.

These macroeconomic headwinds come off the back of rising engagement among consumers in the UK with BNPL products, such as those offered by Klarna and PayPal.

Now, Citizens Advice, a UK-based charity that offers independent legal advice to citizens in need, has released the results of a recent representative poll.

Citizens Advice commissioned a 6,000 person nationally representative poll of UK adults by research company ICM.

Of the 6,000 respondents, some 1,124 people had used BNPL in the past 12 months. Alongside the poll, which ran from January 6-24, ICM also interviewed a nationally representative sample of 1,641 Universal Credit recipients.

It found that certain demographics are more likely to turn to the product.

For example, the charity discovered that young people, those in debt and those claiming Universal Credit, a form of welfare support in the UK, are at least twice as likely to have used BNPL for essentials compared with the general population.

“The fact that people are turning to Buy Now Pay Later for their groceries really hammers home the urgent need for industry regulation,” said Dame Clare Moriarty, Citizens Advice chief executive.

She continued: “As living costs spiral, we fear more people in desperate situations will see this unregulated form of credit as the answer. The government must keep pace with these firms and ensure consumers are protected.”

When approached by VIXIO for comment, a spokesperson for BNPL provider Klarna pointed out that the average age of its users is 35.

“With banks charging record-high interest rates and credit card interest rates reaching a staggering 21 percent, we think Brits need a fairer, healthier alternative to high-cost credit cards,” said Alex Marsh, head of Klarna UK.

He continued: “We offer a Pay Now option so you can quickly and securely pay in full with your debit card, and our interest and fee-free BNPL products come with short-term repayment plans and strict eligibility checks so we only lend to those who can afford to repay.”

Citizens Advice is not the only one who has been concerned about the growing use of BNPL for basic amenities.

Which?, the consumer organisation, and debt charity StepChange have expressed concern that BNPL being used to cover products such as pizza is a sign of problem debt.

This was prompted by BNPL provider Zilch encouraging people to spread the cost of groceries and takeaways over six weeks in an advertising campaign.

Regulation coming

By the time 2022 is up, it is widely expected that BNPL will be in the scope of a regulatory framework. The most likely scenario alluded to by policymakers is that BNPL will be regulated through amendments to the UK’s Consumer Credit Act.

At the moment, there is an exemption in place designed to allow the delayed payment of goods and services as long as that delay is time-limited and does not involve the charging of interest, which BNPL firms have been able to take advantage of.

Political pressure to regulate the market has also been growing.

Discontent with the current regulatory treatment has largely come from Labour backbench MP Stella Creasy.

Creasy has warned that BNPL’s ease of doing business could have negative effects on the poorest in society, contributing to rising debt.

Christine Jardine of the Liberal Democrats has also called on the industry to face tighter regulations to prevent a repeat of previous unregulated products like payday loans.

The ruling Conservative Party, meanwhile, has taken a steady approach to regulation, for example, by voting down an amendment to the UK’s Financial Services Bill put down by Creasy last year, and instead releasing a public consultation on the matter in the autumn. Experts believe that the government's response to this consultation is due soon.

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