Helen Hayes calls for more regulation of ‘buy now pay later’ industry amid fears of spiralling debts from lockdown shopping

Katherine Johnston (20 January, 2021)

'With an extremely unstable economy and rising redundancies, what seems affordable in one month may not be in the next'

36601Helen Hayes, MP for Dulwich and West Norwood

Helen Hayes MP is backing a campaign for further regulation of the ‘buy now pay later’ industry, saying customers are at risk of another ‘wonga-style scandal’.

A cross-party coalition of 70 MPs are demanding action to protect consumers who may find themselves taking on more credit than they can pay off.

Last Wednesday (January 13), MPs debated New Clause 7 to the Financial Services Bill, which would see further controls over companies such as Klarna.

Research from Comparethemarket.com shows similar schemes, where users make purchases over several installments, are now being used 35 per cent more often than before the pandemic. Around a quarter of users said this was because they were unable to purchase outright.

A loophole means that these companies are not regulated by Financial Conduct Authority rules because they do not charge interest – meaning consumers have no recourse to the ombudsman.

The authority is now conducting a review into the industry, chaired by Christopher Woolard, with a report expected later this year.

MPs say there is a growing body of evidence that more customers are falling into debt as they increase their spending.

“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,” Hayes, the Dulwich and West Norwood MP, said.

“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.”

MPs are also concerned about the way companies such as Klarna advertise, often using social media influencers.

The Advertising Standards Authority recently upheld a complaint by Stella Creasy MP over advertising that pitched Klarna expenditure as ‘mood boosting’ during lockdown.

Comparethemarket.com’s research, published in November, showed young people aged eighteen to 24, who are often financially insecure, appear to be the biggest market for these products.

Fifty-four per cent of those surveyed had purchased with buy now pay later schemes, with almost a fifth going on to miss payments in the last year.

Klarna maintains it has ‘strict eligibility’ criteria for those who use the scheme, and rejected any comparisons with the payday loan scandal.

A spokesperson provided the following statement to the News: “At Klarna we support regulation of the sector and look forward to the recommendations of the Woolard review.

“In the buy now, pay later sector there are wide differences between providers, in terms of approach to payment schedules, interest, late fees, eligibility assessments, support for vulnerable consumers and, importantly, protections if something goes wrong.

“That is why it is vital that regulation is updated for the digital age, to ensure that consumers are protected regardless of which provider they choose.

“We recognise that people’s financial circumstances may change and therefore do not lend to everyone or offer an open line of credit on our pay later products.

“We perform strict eligibility checks every time a consumer makes a purchase using Klarna and we have limits in place to ensure that customers cannot accumulate large amounts of debt using our products.

“We ensure that we only ever lend to people who can afford to pay us back. We also have a dedicated team who work with customers in financial difficulty to find a solution that is appropriate for them.

“We absolutely reject any comparison to payday loans products. We are a fully licensed bank and charge consumers no interest and no fees on our most popular products, ever.”

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