Buy now, pay later: Don’t let shoppers default, MPs say

MPs said Britain’s biggest retailers should buy now, pay later services from their websites and stop shoppers from signing up for debt financing at checkout by default, after the £2.7bn industry was found to pose ‘significant’ potential harm. for shoppers. .

A review of the booming sector published earlier in the week found it badly in need of regulation amid concerns that some users do not see it as credit and could find themselves owing up to £1,000 “with relative ease”.

Activists and MPs said retailers ‘should look to ensure they promote and implement these products as if they were regulated’ and offer them responsibly as the Financial Conduct Authority devised a new set of rules for the fast-growing industry.

Paul Maynard said that

A call to action: Labor MP Stella Creasy and Tory MP Paul Maynard said it was the money, and they wanted to see more action on ‘buy now, pay later’ companies

The value of spending made through these payment methods, which allow shoppers to pay for goods in interest-free installments or after purchasing them, more than tripled between January and December last year. Three-quarters of users are between the ages of 18 and 36.

Labor MP Stella Creasy, who has previously warned that the sector presented risks of scandal along the lines of Wonga, called on “responsible retailers” to “remove these companies from their websites so we can get this UK regulation up and running”.

She told This is Money: ‘While we wait for the government to act on these recommendations, retailers who currently promote BNPL products that we now know to be exploitative – including Asos and M&S – can take the first step and remove BNPL from their websites until regulations are in force.

Her fellow Labor MP Jessica Morden said regulation was “vital” to ensuring proper oversight of an industry that risks becoming the Internet’s new Wild West; Motivate young shoppers to get trapped in unsustainable debt levels.

However, some of Britain’s biggest retailers, including Asos, H&M, Marks & Spencer and Wilko contacted by This is Money, said they would continue to feature the likes of ClearPay, Klarna and Laybuy on their websites.

Others have also raised concerns about the fact that some retailers have used buy now, pay later as the default payment option at checkout.

Conservative MP Paul Maynard, who has previously supported calls for more regulation of the sector, said it was money “there was no time to lose” and said it was “inappropriate” that BNPL methods were often the default at exit.

Retailers have a huge responsibility to do the right thing

Campaigner Alice Tapper (R) said retailers have a huge responsibility to do the right thing until regulations are introduced.

Campaigner Alice Tapper (R) said retailers have a huge responsibility to do the right thing until regulations are introduced.

ClearPay, Klarna, Laybuy and now PayPal have collectively partnered with thousands of retailers on and off the high street to offer buy-now-pay-later services.

Amid findings by The Wallard Review that shoppers could get into debt of up to £1,000 ‘relatively easily’ using such services and that there was a risk of ‘significant potential harm to consumers’, Labor MP Stella Creasy urged ‘Responsible Retailers’ to take down the payment method until it is regulated.

“While we wait for the government to act on these recommendations,” she said, “retailers who are currently promoting BNPL products that we now know are exploitative can take the first step and remove BNPL from their websites until regulations are enforced.”

Although it didn’t go that far, Alice Taber, who has campaigned for better regulation of the sector since last June, said retailers should look to ensure they promote and implement these products as if they were regulated.

“In the absence of regulation, they have a huge responsibility to do the right thing.”

That’s the money Stella Creasy reviews put into nine retailers partnered with at least one of these services.

They are Asos, Ernest Jones, Gym Shark, H&M, Halfords, JD Sports, Marks & Spencer, WH Smith, and Wilko. We also asked them if they had any other comments in response to Woolard’s review.

Most of them did not reply, or did not want to comment on the record. Asos cited an announcement in November that it had voluntarily signed up to best practice guidelines set by Alice Tapper that would ensure the “responsible promotion of postpaid options.”

Marks & Spencer did not provide official comment but welcomed Woolard’s review and said it was committed to complying with all buy-now-pay-later regulations.

H&M said: ‘We constantly review our payment options and always strive to create the best possible shopping experience and offer a variety of payment methods for our customers, including Pay Now, an alternative that means the customer can choose to pay directly.

H&M Group welcomes the whole industry’s more visibility to buy now, pay later and will follow the development in this field. We always strive to comply with local laws or regulations.

“We will continue to be the trusted partner on the high street and online for everyday home and gardeners,” said Wilco.

We currently offer Laybuy as a payment option for online customers looking for additional flexibility.

“We always do what is right by Wilko customers and make sure we follow the latest government guidelines when it comes to selling all of our products.”

He said companies that did so “should ensure they stop before internet content regulators get involved.”

“Sweden has already taken steps to ensure web customers are not directed to credit before debit, so I hope the relevant regulators in the UK will look to follow suit following comments in Tuesday’s review.”

Alice Tapper, who has been campaigning for regulation of the sector since last June, asked retailers not to set payment methods like Klarna as a default option for those who have not used it before and to make it easier for customers to change to another payment method.

It had previously handed over to regulators examples of more than 20 cases in which shoppers inadvertently signed up for BNPL debt after it was the default option at checkout.

An FCA review published yesterday found that 1 in 10 customers of a large bank were already in debt when they were allowed to buy something with BNPL

An FCA review published yesterday found that 1 in 10 customers of a large bank were already in debt when they were allowed to buy something with BNPL

‘I just paid with Klarna without wanting, I thought it came off my debit card,’ someone told her.

The Wallard Review, which said the sector needed to be regulated, echoed its findings.

“In some cases, BNPL offers are presented as a default payment method or in a long list of indistinguishable options,” he said.

The details of each option are not explained upfront and this can be confusing to consumers and make it difficult for them to make an informed decision.

Consumer research and responses have highlighted that some consumers do not view BNPL as credit, often associating it too closely with payment technologies such as Google Pay, Apple Pay, or Amazon One Click.

Labor MP Jessica Morden said the organisation

Labor MP Jessica Morden said regulation was “vital” to ensuring the industry does not become a “New Wild West”.

Consumer research respondents said placement on retailers’ payment pages and references to “zero cost” and “new payment methods,” suggested parity with a debit card rather than a credit product.

“It is concerning that our consumer research has shown that consumers do not necessarily view BNPL offers as credit, although most still view them as a financial service.”

Although BNPL routes in Klarna’s home country of Sweden have been banned from being shown by debit card routes, the review did not recommend the UK take the same step.

Britain’s advertising watchdog said last December it needed to be “explicitly clear to customers” that these payment methods were credit products when they were advertised at checkout and that retailers needed to make it clear that standard payment methods were available.

She added, “This is particularly important as the late payment service option is primarily presented in the form of a detailed card entry form, where it may not be immediately apparent to the consumer that this is anything other than a means of payment.”

This is Money has contacted both Klarna and Laybuy to respond to the reps’ comments.

“Laybuy has never been the default payment setting and we will never insist that Laybuy is the default payment setting for business partners,” Laybuy said in a statement.

“It’s important that customers have a choice about how they want to pay, but as part of our commitment to responsible lending, we believe it’s important that customers understand the services they use.

“We will continue to work with the government and regulator on the next steps for Woolard’s review.”

A Klarna spokesperson said: ‘Klarna in the UK is not the default payment option for new customers, so no one is using our products for the first time unless they choose it. For returning customers, some retailers automatically select their last payment option, whether it’s a credit card, debit card, wallet, or Klarna.

Consumers want online payments to be convenient, secure, and flexible. And that’s what buy-now-pay-later services provide, without hidden surprises like interest or, in Klarna’s case, late fees.

At Klarna we have long called for regulations to raise standards across the sector and have welcomed Woolard’s review of change and innovation in the unsecured credit market.

“We now look forward to working alongside the FCA, government and the broader sector to build a modern regulatory and supervisory framework that delivers the best outcomes for clients.”

ClearPay could not be reached for comment.

The government said earlier this week that it would regulate the sector, likely through an amendment to the Financial Services Act which is currently working its way through parliament.

Chancellor of the Exchequer John Glenn said earlier this week: ‘The government’s decision to put in place a buy-now-pay-later system will mitigate the risk of consumers going into unsustainable debt by giving the Financial Conduct Authority oversight to buy-now-pay-later providers. and allowing people to escalate their complaint to the Financial Ombudsman Service if things go wrong.

Under these plans, providers will be subject to FCA rules, so they will need to carry out affordability checks before lending and ensure they treat customers fairly, particularly those who are poor or difficult to pay.

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