Citizens Advice has revealed its concerns over the number of people using ‘buy now pay later’ arrangements, especially those from vulnerable groups. Its research shows that 27% of UK adults have used a BNPL arrangement in the last 12 months, but this rises to 37% of disabled people and 45% of those with a mental health problem, as well as 45% of people in the 18 to 34 age group. Half of the customers in this younger age group said that they had unwittingly signed up to a BNPL arrangement when they never intended to do so. The average repayment under a BNPL arrangement is said to be £63 per month.

The survey also indicates that around 40% of those who used BNPL in the past year don’t consider it to be ‘proper borrowing’, while a similar number say they didn’t fully understand what they were signing up for. The proportion of BNPL customers who are struggling to maintain repayments is also put at around 40%. Approximately 30% reported being hit with unexpected fees and charges. Overall, 25% of BNPL customers said they regretted entering into the arrangement.

The growth of online retail is believed to be one of the main drivers of a massive increase in the size of the BNPL market. It is estimated that £1 of every £25 spent in the UK falls under a BNPL arrangement.

The government intends to legislate to bring BNPL products under the scope of Financial Conduct Authority regulation. This will force providers to carry out affordability checks before approving customers and will allow customers to bring complaints to the Financial Ombudsman Service.

BNPL arrangements have not previously been regulated by the FCA as there is no need for any additional amounts to be repaid and hence no regulated credit agreement is created. Instead, the purchaser simply repays the purchase price in instalments over a period of time.

However, a review by former FCA acting chief executive Christopher Woolard commented that there is a risk that, given this repayment arrangement, consumers may not apply the same level of scrutiny to their decision making as they would for other credit products, including consideration of the potential consequences of failing to repay.

Then when customers fail to repay, providers might currently take various steps, including imposing late payment fees, passing the debts to collection agencies and/or reporting the matter to credit reference agencies. All of these could potentially lead to consumer harm.

Alistair Cromwell, acting chief executive of Citizens Advice, said:

“Buy Now Pay Later borrowing can be like quicksand – easy to unwittingly slip into and much more difficult to get out of.

“It shouldn’t be possible for people to sign up for credit without realising, and the fact this is happening so often signals that a drastic overhaul is needed.

“This industry more than trebled in 2020, and while these products work for many shoppers, the regulator has rightly recognised the potential for harm. It must ensure robust consumer protection keeps pace with changes in how we shop.”