10% of pay-later shoppers struggle with debt - report

By

Nigel TAYLOR

Published
Sep 3, 2021

A darker side to the UK retail revival is a warning of rising consumer debt. The fast-growing popularity of  ‘buy-now, pay-later’ (BNPL) services in the UK now sees one in 10 consumers opting to buy goods using this form of credit arrangement.

However, with it comes an increasing number of them being chased by debt collectors, according to a Citizens Advice report.

The body is calling for regulators to crack down on such easy-access credit and ensure there are clearer warnings to online shoppers who could be pursued for the money, The Times newspaper reported.

In a survey of 2,000 buy-now, pay-later users, Citizens Advice found 195 had been contacted by, or referred to, debt collectors. The charity also estimated that UK shoppers using the option were charged £39 million in late fees last year.

Many shoppers have embraced the option to defer paying in full and pay in interest-free monthly instalments instead. But consumers are liable for the debt and can, in some cases, be charged late payment fees and also have their personal details passed to debt collection agencies if they default.

Formal affordability checks are not required, though most operators undertake “soft credit checks” that are not disclosed to other lenders, the report noted.

It’s claimed consumers can build up as much as £1,000 of debt without it appearing on the radar of conventional credit-checking agencies.

The newspaper report noted the Treasury said in February that BNPL would become a regulated activity policed by the Financial Conduct Authority. However, it has yet to launch a consultation process on this.

Dame Clare Moriarty, chief executive of Citizens Advice, said: “The sheer number of shoppers facing debt collection is startling.”

But companies operating BNPL have hit back and said their systems are robust and not exploiting people in debt.

Klarna for instance, the biggest such provider in Britain with 15 million customers,  said that it referred fewer than 1% of customer orders to debt collection agencies and never charged late fees on its conventional BNPL products. 

It also said it never sold problem debts to third parties and unpaid debts were eventually written off.

A spokesman told The Times: ‘‘The debt collection agencies we work with are all FCA-authorised and will only contact customers by telephone or email and do not use bailiffs.”