Lenders who buy now and pay later need urgent regulation to prevent young consumers from incurring a mountain of debt they may not be able to afford, Labor MP Stella Creasy said.
Walthamstow MP Creasy called a debate in parliament on Tuesday to draw attention to the rapid growth of companies like Klarna.
“My concern is that the speed at which this industry is moving will have a very serious impact on consumers this Black Friday and Christmas if the government doesn’t act so quickly,” she told the Guardian ahead of the debate.
“I think the politicians consoled themselves that during the pandemic the people paid off their debts, they saved more, they could be better off financially – but only those who had money to save were primarily there.” this position. And there is growing inequality that we haven’t addressed. “
She added, “They already have a smoldering debt fire, and before the pandemic there were people using credit cards and expensive loans to cover their expenses – who were already filming and juggling. And in this picture a new form of credit has entered, which is aggressively marketed and shoved down their throats without any protection. “
Buy-now-pay-later (BNPL) loans allow consumers to pay for goods in multiple installments instead of paying the full cost upfront.
Citizens Advice, which also calls for regulation of the sector, recently warned that one in ten people expects to rely on “buy now, pay later” to manage the Christmas spending.
Firms don’t charge interest, but borrowers unable to make their repayments may face late payment fees and be prosecuted by debt collection agencies.
Research by Citizens Advice found that one in ten BNPL users – or one in eight younger users – was tracked by a debt collection agency in the past year. Its director of politics, Matthew Upton, recently described its use as “like quicksand”.
Creasy urged retailers to stop using BNFL until it is properly regulated.
The government agreed to regulate BNPL lenders after an independent review published in February, chaired by City expert Christopher Woolard, warned that the sector was “causing significant potential harm to consumers.”
However, Creasy points out that the Treasury Department just released a consultation on the matter just last month, which will not be completed until the new year, and will be followed by a separate consultation with the regulator, the Financial Conduct Authority (FCA).
By then, she says, young consumers will have millions of pounds more in debt.
Creasy had previously fought loudly against payday lender Wonga, who eventually went into administration following government crackdown on allegations of irresponsible lending.
A Klarna spokesperson said: “UK consumers are choosing BNPL as a more responsible payment method, saving money and helping them manage their finances compared to alternatives like credit cards. We offer short-term interest-free and fee-free BNPL products with structured repayment schedules that keep people out of debt. “
An FCA spokesman said it was vital that the law keep pace with the changing nature of the credit market. “We plan to discuss new regulations soon after the Treasury Department has consulted and decided which companies and activities will be regulated. We are already working on what our regulation of these companies will look like, ”they added.
The Ministry of Finance was asked for an opinion.