National advice charity Citizens Advice (CitA) has revealed it has concerns over the fees being imposed on consumers who miss interest-free payment deadlines on ‘buy now, pay later’ deals in the catalogue and mail order markets. The charity says it has been contacted by as many as 24,000 people seeking its assistance with issues related to these types of deals during 2016, and also says that 70% of these contacts were from consumers with debt repayment problems.

CitA is concerned that many people do not fully understand how these types of arrangement work – normally a customer has between six and 12 months from the date of purchase to simply pay the purchase price in full, without the addition of any interest. However, should they fail to pay the full price by the stipulated deadline, interest charges are typically backdated to the very start of the agreement. The charity says this is resulting in some consumers repaying more than twice the amount they had borrowed.

CitA also says it is concerned that firms are not carrying out sufficiently rigorous affordability assessments before granting this form of credit, and also that firms are engaging in aggressive and inappropriate debt collection practices. Consumers aged 25 to 29 are most likely to be affected by problems with this type of credit agreement.

CitA notes that the regulator, the Financial Conduct Authority (FCA) is looking at the catalogue credit market as part of a wider review into high-cost credit. The charity has called for the FCA to require firms to: explain more clearly to clients if interest charges would be backdated to the start of the agreement; and clearly set out the level of any fees that could be imposed for late payment. It also wants the regulator to extend the existing payday loan price cap to catalogue credit and other forms of credit.

The charity’s press release highlights two examples of what it believes to be poor treatment of catalogue credit customers:

• A man who bought a laptop for £700 on a one year interest-free deal. He was unable to pay the final instalment during the interest-free period as he had been forced to stop working after developing health problems. Instead of assisting with his difficulties, the retailer slapped him with an interest payment that was almost as much as the cost of the computer itself
• A man who bought an iPad for £600, also on a year-long interest free deal. He was only £100 short of making the full payment at the end of the interest-free period, but was still hit with a backdated charge of nearly £700 in interest, which was more than the purchase price of the goods

CitA Chief Executive, Gillian Guy said:

“Missing a payment deadline can make the cost of catalogue borrowing sky-rocket.

“In some cases people have nearly paid back everything they owe but because they’ve run out of time their debts have suddenly soared to double what they originally borrowed.

“Buy Now Pay Later deals help people spread the costs of catalogue purchases but it’s vital customers understand what they are signing up for and what will happen if they don’t repay on time.

“Clearer explanations by catalogue firms when advertising these deals will prevent people being hit with shock bills that could send them spiralling into debt.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.