Regulators have been urged to crack down on ‘buy now, pay later’ firms after a damning report revealed that one in 10 shoppers using the credit services are being chased by debt collectors.
Citizens Advice, a group of legal, money and consumer groups, raised the alarm after finding that 195 of the 2,000 buy now, pay later users it surveyed had been contacted by or referred to debt collectors.
The charity estimated that UK shoppers using the option were charged £39m in late fees last year.
It called on regulators to provide clearer warnings that shoppers are entering into a formal credit agreement and could be pursued for money.
Buy now, pay later payment options have surged in popularity, particularly among younger shoppers. The Citizens Advice report said 45% of 18-to-34-year-olds had used the services in the past year.
Options allowing customers to stagger their payments appear at the point of purchase on several major retailers’ websites, allowing customers to spread the cost of their basket across instalments interest-free.
Formal credit checks are not required, though most operators undertake ‘soft credit checks’ that are not disclosed to other lenders.
Market leader Klarna, whose valuation topped $45bn (£33bn) following its latest fundraising round in June, has 15 million customers in the UK. The likes of Openpay, Clearpay and PayPal also operate in the increasingly competitive market.
In February, the government announced that interest-free payment options would be regulated by the Financial Conduct Authority but the Treasury has yet to launch a consultation on the scope of the regulation.
- Never miss a story – sign up to Retail Week’s breaking news alerts
No comments yet