As recently as late June, the UK government announced that millions of people would be protected through strengthening regulation of Buy-Now Pay-Later credit agreements. In as few words as possible, lenders would be required to ensure loans are affordable and rules would be amended to ensure advertisements are fair, clear and not misleading.
And the government would also expand rules to cover other forms of unsecured short-term credit that pose similar risks to consumers. Using a tenuous excuse that the who area of much needed regulation was terribly complex – it is not really if there the subject is given the priority it merits- the government said that it might get around to publishing consultation on draft legislation towards the end of the year. Thereafter, we might see secondary legislation by mid-2023. Further delays would then inevitably occur, while the FCA consulted on its proposed roles for the sector.
In the intervening four months, the government minister at the Treasury responsible for the proposed legislation, John Glen, has left government and there has been a change in Prime Minister. And government U-turn after U-turn on key policies, so who knows if or when, we might hear further from the Treasury.
Meantime, a wealth of data continues to hit the inbox highlighting the extent to which buy now pay later is developing into a modern debt trap. In Australia, consumer group Choice reports that one in seven users of credit from buy-now-pay-later providers had more than 20 loans last year.
The Choice survey also found that consumers were using BNPL services to cover essential bills, with one in six using the short-term loans to cover supermarket purchases and 14% to pay for power. In the UK, data from Citizen’s Advice have reveals that over two-in-five BNPL users borrowed money simply to make repayments
The same research from Citizen’s Advice reveals that 51% of 18–34-year-olds are most likely to borrow money to pay off BNPL debt, compared to 39% of 35–54-year-olds and 24% for those over 55.
As Mat Megens, CEO and founder of HyperJar summarises neatly: “‘Quick hit’ spending is a cause of debt for millions of people – especially for younger generations. It’s the financial hangover after that instant dopamine hit from spending. That obligation to pay for things after you’ve got them has a negative emotional effect, whether we know it or not, because we now have a debt which prevents is from doing other things in life.”
Only last month, the US-based Consumer Financial Protection Bureau (CFPB) published a report on the Buy Now, Pay Later industry. The report, Buy Now, Pay Later: Market trends and consumer impacts, finds that industry grew rapidly during the pandemic, but borrowers may receive uneven disclosures and protections. The five firms surveyed in the report originated 180 million loans totalling over $24bn in 2021, a near tenfold increase from 2019. CFPB Director Rohit Chopra said: “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”
So, both the UK and US are planning to regulate and whatever the current political challenges, as the cost-of-living crisis accelerates, one can only forecast that we will see yet more data highlighting the need for urgent regulation. At the same time, the BNPL sector remains a sea of red and market valuations are finally correcting.