Buy Now Pay Later must be regulated – before it pushes even more vulnerable people into debt

Have you ever used a Buy Now Pay Later (BNPL) service to buy something? If not, you’ll soon be in a minority, as around half of the population have now used BNPL at some point. But just because its popular doesn’t automatically mean it’s safe.

It’s marketed as swift, convenient and easy-to-use – with the added lure of being able to check you really want the goods you’re buying before you actually pay for them. Initially, BNPL popped up in the world of online shopping, although it’s now often available on the high street too.

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Yet despite the rapid growth of this innovative credit product, regulation has failed to keep up. And Buy Now Pay Later has turned into buy now, regret later for a number of clients we see who have found it contributing to their debt problems.

Although it’s been years since the previous government agreed that BNPL ought to be regulated by the Financial Conduct Authority (like other kinds of credit such as credit cards, overdrafts or store cards) it still hasn’t happened – although the incoming Labour government has promised to introduce regulation soon.

At StepChange, this lag concerns us, and we need to see the government press ahead with the promised regulation as soon as possible. This is especially important because BNPL users often have higher financial vulnerability than others, and this type of credit is now often being used for essential purchases, not just for discretionary treats. Yet there’s no requirement to do the kind of affordability checks that are expected from lenders before they grant other types of credit.

Research in 2022 found that BNPL users were twice as likely as all credit users to be “safety net borrowers” – that is, to use borrowing to pay a bill, meet a repayment, or make it through to payday. And more recently, StepChange research conducted with YouGov found one in 10 (11%) people, equivalent to over five million, have used BNPL in the last 12 months, rising to one in four among those in receipt of universal credit (24%). BNPL use is now as common as using an overdraft (12%) among all UK adults.

As a charity on the frontline of the cost of living crisis, we speak to clients every day who are forced to use BNPL as a safety net. Our client, Alannah, is a young mum with two children, and claims universal credit. She has found her finances so stretched by rising costs that she has turned to using BNPL for essential costs like the weekly shop to “make things work as best we can,” in her own words. Sadly, this story is far from unique.

This isn’t to say we’re against Buy Now Pay Later, we simply think it’s vital that it’s put on a level playing field with other types of credit in terms of consumer protection. Just because it’s interest-free doesn’t mean it’s risk-free. It can end up costing you money, damaging your credit score and leading to wider financial difficulty if you don’t pay on time, so why should it be outside the scope of normal financial services consumer protection regulation?

Let’s not forget that the main winners from the rise in BNPL are the retailers – because people buy more than they otherwise would (and this is why retailers are willing to pay BNPL providers for their service). So even if it’s marketed to consumers for its convenience and ease of use, the truth is that BNPL wouldn’t exist if it wasn’t benefitting sellers.

The principle that credit should be “bought, not sold” has been weak in the BNPL market up to now, with retailers falling over themselves to make it easy for people to use this new form of borrowing. We look forward to seeing the government bring it into line with other forms of borrowing as soon as possible.

In the meantime, we urge consumers to think long and hard about affordability – as your lender may not be doing so in the same way that they would if you borrowed in a different way. Be aware of the risk of being inadvertently seduced by the apparently cost-free, easy access credit offered by Buy Now Pay Later, given that the usual protections don’t (yet) apply.

Vikki Brownridge is CEO of StepChange.

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