Money Saving Expert’s founder Martin Lewis has said he is “very concerned” about the growth of ‘buy now pay later’ schemes in the UK.
The financial expert and TV presenter told his 1.1 million followers on Twitter: “It’s exploding like payday loans did. And like payday loans were, it’s a huge credit industry that’s unregulated – so few rules, and you can’t go to [an] ombudsman. That must change.”
Lewis has teamed up with Labour MP Stella Creasy to urge the government to take action on companies offering ‘buy now pay later’ by regulating them.
As it stands, such companies – which basically allow people to buy items online and pay at a later date, often in instalments – are unregulated in the UK.
They’re usually interest-free and, as such, are increasingly popular, with online shopping sites often advertising them as one of the first payment options.
At a time when incomes might be stretched – we’re in a pandemic and Christmas is just around the corner – there’s a huge appeal to use these services. They are also easy to sign up for: you simply fill in your details at the physical or online checkout and find out pretty much immediately whether you’ve been approved or rejected, after a quick credit check.
So what’s the problem, then?
Money Saving Expert’s banking editor, Helen Saxon, tells HuffPost UK: “These short-term two- or three-month ‘buy now pay later’ schemes are problematic because they’re so easy to apply for.
“Some people don’t even realise they’re taking out credit because there’s no interest. And while individual ‘buy now pay later’ providers will limit how much you borrow from them, you could easily end up owing £1,000+ across different providers.”
There is also a temptation to spend more than you normally would, she says, because the process is so easy and the “pain” of handing over money for something is deferred until next week or next month.
But the service can quickly become costly if you don’t make your repayments on time – and people can find themselves saddled with debt. According to Experian, if you don’t clear your debt before the delayed period is up, some providers will ask for a settlement fee or a lump sum of interest may be added to the debt. External debt collectors might also become involved.
How might this affect your credit score?
You could be charged late payment fees and any missed payments could be recorded on your credit report. “Many people don’t realise with some of these schemes that there are late fees if you don’t make payments on time,” Saxon adds, “and they don’t realise that missed payments could end up going on their credit report, affecting their ability to get other credit in future.”
The Financial Conduct Authority (FCA) is the UK regulatory body responsible for keeping financial firms in line and protecting consumers, but doesn’t regulate short term ‘buy-now-pay’ later lending isn’t regulated by the FCA, says Saxon, meaning providers don’t have to run the same checks you’d need to go through to get, say, a credit card, overdraft or loan.
If you need to complain about a ‘buy now pay later’ provider, you might also find it a struggle to get sufficient support. “Because they’re unregulated, you can’t appeal to the Financial Ombudsman if you complain to the ‘buy now pay later’ provider and it doesn’t help you or doesn’t deal with your complaint,” she adds. “With other regulated forms of credit, this is an automatic right.”
It’s clear these services are a useful one for those who only buy things they’ve budgeted for and can make payments on each due date. “Like any credit used well, ‘buy now pay later’ can be a valuable tool,” says Saxon.
“But not everyone is financially disciplined, and that’s why we need regulation of all ‘buy now pay later’ products – to ensure that those who are more vulnerable or more likely to get in to unmanageable debt are protected,” she adds.