The Credit Union has welcomed the Government announcement that ‘buy now pay later’ credit agreements will be regulated by the Financial Conduct Authority (FCA) to protect consumers.
A review of the unsecured credit market has recommended regulating ‘buy now pay later’ products to protect consumers from potential harm. In future, providers of these products will be required to carry out affordability checks on customers and ensure the vulnerable are treated fairly.
‘Buy now pay later’ products have rapidly increased in popularity in the last year or so, as the pandemic has driven online shopping, but there is a significant risk that these agreements could cause harm to consumers.
Many consumers do not view interest free ‘buy now pay later’ as a form of credit, so do not apply the same level of scrutiny, and checks undertaken by providers tend to focus on the risk for the firm rather than how affordable it is for the customer.
Although the average transaction tends to be relatively low, shoppers can take out multiple agreements with different providers – and the recent review found that it would be relatively easy to accrue around £1,000 of debt that credit reference agencies and mainstream lenders cannot see.
With several ‘buy now pay later’ providers planning to expand to higher value retailers, or offer their products in-store, the risk that consumers could take on unaffordable levels of debt is increasing.
The government’s decision to bring ‘buy now pay later’ into regulation will give the Financial Conduct Authority oversight of ‘buy now pay later’ providers and will allow people to take their complaint to the Financial Ombudsman Service if things go wrong.
Under the new plans, providers will be subject to FCA rules so will need to undertake affordability checks before lending and ensure customers are treated fairly, particularly those who are vulnerable or struggling with repayments.
Martin Groombridge, Credit Union Chief Executive, said: “While ‘buy now pay later’ may seem tempting when shopping online, the government’s review highlights just how vulnerable people with this sort of credit can be if things go wrong. It’s good news that the government is planning to act to protect consumers, but we would urge people to talk to their local credit union first if they’re struggling to afford the things they need.
“Our fair and affordable loans offer consumers a safe and secure way of accessing funds when they need them, at extremely competitive rates of interest. We also help our members to kickstart a savings habit, which can reduce their need to borrow in future.”