Responding to the Financial Conduct Authority plans to regulate ‘Buy Now Pay Later’ agreements, CAS Financial Health spokesperson Derek Young says:
“This is a welcome step forward. The Citizens Advice network in Scotland helps and advocates for hundreds of thousands of people a year and Buy Now Pay Later deals can be a financial trap for the unwary consumer.
“We have called for action to protect consumers from the worst aspects of these deals, so it is good news that the FCA is making this move.
“We are particularly pleased to see the changes around backdated interest and the requirement for lenders to be more transparent about their charges. These are significant changes and should help protect many struggling households from falling further into debt.
“We note however that their plans do not include a number of other key recommendations we have made. There is certainly more that can be done to protect consumers, and we will be monitoring closely how these changes work in practice.”
Notes to editors:
Buy Now, Pay Later deals include a specified offer period, typically nine months or a year, during which customers do not have to make payments and are not charged interest. If the consumer does not repay the entire amount within this period, interest may be charged on some or the whole amount borrowed, backdated to the date of purchase. These deals often apply to expensive purchases like household appliances, technology and furniture and are offered by retailers rather than traditional lenders such as banks.
CAS will continue to campaign for additional reforms to these deals:
- Repayment prompts to be made several months before the offer period ends, to allow households on modest incomes a reasonable opportunity across several payment cycles to clear the sums due;
- No discounts on the sale price offered for taking on a BNPL deal (which can unreasonably increase the pressure to agree them at the point-of-sale, especially for vulnerable customers);
- A payment hierarchy rule, analogous to the one introduced for credit cards in 2011, to require payments to a creditor who holds multiple debts to be allocated to those bearing the highest interest rate first; and
- Lenders should be willing to show forbearance and vary the terms of a BNPL deal where the customer has had a substantial change in circumstances (e.g. loss of income because of redundancy; sanctions or non-payment of benefits causing hardship).