Checkout credit providers have been accused of making it too easy for young people to get into financial trouble, after research found that they often did not realize they were carrying debt.
A survey of 2,700 users of buy-now-pay-later services such as Clearpay, Klarna, Laybuy, Openpay and PayPal found that more than half of 18-34-year-olds signed up without realizing it, while 35 percent regretted their debt. – Fueled purchases.
Two in five of those surveyed by Citizens Advice between January and February felt that what they signed up for was not ‘appropriate’ borrowing in the same way a credit card or loan was, and 42 in 100% exactly what they were signing up to.
Buy now, pay later services are becoming increasingly popular among the younger generations who are more accustomed to online shopping.
The research provides further scrutiny of the burgeoning and increasingly controversial BNPL sector, which is poised for regulation by the Treasury and the Financial Conduct Authority, which This is Money reported last weekend could be just weeks away.
The sector allows people to pay for goods after they have been purchased, or break them down into smaller payments, often using informal credit agreements.
The so-called “Klarna clampdown”, named after one of the most popular digital BNPL providers, will certainly cover the marketing of these services, and the affordability tests that are carried out before users sign off.
Many platforms, including Klarna, run soft credit checks that don’t appear on a borrower’s file, which means that other service providers and banks are unable to say how much debt some borrowers may have.
Klarna was also slapped on the wrist by the ASA for its influencer marketing campaigns last year.
The fact that many of the younger borrowers, who were paying back an average of £63 a month according to the charity, appear to be signing up by default without their knowledge is something regulators have tried to crack down on in recent months.
Some buy-now-pay-later providers don’t do any kind of credit checks, they don’t even run simple searches that don’t show up on borrowers’ credit files.
Late last year, the Advertising Standards Authority said providers should make it clear that buy-now, pay-later financing was a form of credit.
However, the small print these providers give consumers can take up to an hour to read, according to an analysis by personal finance website NerdWallet.
It’s ‘inappropriate’, Conservative MP Paul Maynard told This is Money in February that credit has often been the default payment method at checkout.
He said he hoped the government would follow the example of Sweden, which has banned the appearance of credit before debit payments.
Paul Maynard, the Conservative MP, said that money was “inappropriate” Repayment credit should be the default payment method
Campaigner Alice Tapper had previously handed regulators examples of more than 20 cases where shoppers had paid using the BNPL service without wanting to.
Citizens Advice said it plans to share research with the FCA as it decides how it will regulate the booming sector, and called on BNPL firms to ‘reform checkouts to ensure shoppers are discouraged from spending more than they can afford, and improve affordability checks.
This sector has exploded in recent years and in 2020 in particular, especially among younger shoppers.
And Citizens Advice found that nearly half of people ages 18 to 34 have used a BNPL service in the past 12 months, compared to 27 percent of all adults.
And with the increase in the number of users, more people are in debt and struggling to pay it off.
One in five of 280 citizens’ debt counselors said in December they had dealt with people with BNPL debt, and 41 per cent had seen more problems since the start of the pandemic.
Research by the Financial Conduct Authority (FCA) initially published in February said spending through these services nearly quadrupled in 2020. As a result of the “potentially significant consumer harm” posed by the sector, it must be regulated “as a matter of urgency.” ” , have found.
Anthony Morrow, co-founder of online financial advisor OpenMoney, said the Citizens Advice results were ‘really shocking’.
He added, “Buy now, pay later makes it very easy to take on debt without fully understanding the consequences.
“These schemes encourage excessive spending, tempt people to live a lifestyle they cannot afford, and there is a real risk that they will lead, especially for young or vulnerable consumers, to long-term debt.”
In response, one provider, Openpay, which lets shoppers pay for goods over three to seven months, said it was “committed to being a responsible lender”.
Managing Director Andy Harding said: “Openpay has never run a marketing campaign specifically targeting young people, and Openpay is never the default payment option at checkout – a practice that can lead to people using BNPL’s services inadvertently.
“Openpay has never run a marketing campaign specifically targeting youth and Openpay is never the default payment option at checkout – a practice that can lead to people using BNPL’s services inadvertently.”
Alex Marsh, Head of Klarna UK, said: ‘There is now a diverse range of buy and pay later providers on the market and the findings in this report are not representative of the experiences of the over 12 million consumers who have chosen to use Klarna interest-free. , free services every year.
“We make this very clear to our customers when verifying that this is a credit product, we run a credit check every time they use our service, and we are available 24/7 to support the small number of customers who unfortunately find themselves in difficulty.”
Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.