Credit Management January February 2022

CMNEWS
A round-up of news stories from the
world of consumer and commercial credit.
Written by – Sean Feast FCICM
Charity urges HM Treasury to proceed
swiftly with plans to regulate BNPL
BUY Now, Pay Later
(BNPL) products are
being widely used by
people experiencing
financial difficulty, and
people with two BNPL
loans are twice as likely as all adults
to say they are finding it difficult to
keep up with their household bills and
credit repayments.
This is the claim being made by
StepChange Debt Charity as it urges
the Government to accelerate its plan
for regulation to protect consumers
more adequately.
A poll commissioned by the charity
suggests that 10 percent of British
adults report holding one or more
BNPL debt; 30 percent of those with a
BNPL debt have two or more loans and
14 percent three or more. Almost nine
out of 10 (87 percent) of those with a
BNPL debt also have at least one other
type of consumer credit product with
an outstanding balance.
BNPL borrowers tend to be younger,
with an average age of 44 compared
to 51 among those who hold any credit
product. Almost half (49 percent) say
they find it difficult to keep up with
household bills and credit repayments,
rising to 59 percent among those with
two or more BNPL loans.
The charity says that the size and
impact of BNPL in the market is
being driven at least to some degree
by a ‘race for growth’. The value of
customer acquisition may have
affected the willingness of some firms
to knowingly or otherwise engage
in practices that are detrimental to
consumers, such as relatively relaxed
approaches to creditworthiness and
affordability assessments.
Phil Andrew, Chief Executive
at StepChange, says that even
interest-free credit can and does
cause financial difficulty: ‘BNPL is
deliberately marketed and presented
– often to less financially experienced
consumers - as a means of payment
rather than as a form of credit, which
is what it really is. It is marketed not
just for lifestyle spending, but for
essentials such as groceries or school
uniform.
“There is currently very little friction
to prevent consumers building up
significant amounts of cumulative
BNPL debt,” he continues, “so it’s
vital that regulation swiftly brings
this rapidly growing lending market
into line to ensure that consumers
are better protected from the risk of
financial difficulty.”
The charity is not alone in
demanding regulation now and not
later. Sarah Coles, senior personal
finance analyst, Hargreaves Lansdown,
says that the Government cannot
afford to drag its feet: “While it’s going
through this process, the sector is
mushrooming before our eyes,” she
says.
The growth of the market is
phenomenal, with the value of
transactions more than tripling
in 2020 – to £2.7 billion. Since HM
Treasury launched its consultation
in October, millions of people have
taken out new loans they may not
fully understand or be able to afford.
Citizens Advice said that one in ten
people used BNPL over Christmas
alone. “The spending squeeze risks
even more people turning to this
market to help make ends meet, and
the spread of these services across
everything from fashion to food means
it’s finding its way into every area
of spending. There's a real risk that
building up these debts will erode
people's financial resilience,” Sarah
adds.
Jayadeep Nair, Chief Product and
Marketing Officer at Equifax UK,
believes the soaring popularity of
BNPL services has fundamentally
changed the UK retail landscape by
increasing access to affordable credit
at the point of sale: “Our data suggests
that 28 percent of UK consumers were
actively making repayments on BNPL
loans in October 2021, which is around
2.8 million more people than at the
start of last year.
“With increased use comes
increased scrutiny, and it’s wholly
appropriate for the Treasury and FCA
to now be weighing up the right level
of regulation for what has become an
extremely active and exciting part of
the credit market.
“BNPL providers have a
responsibility to ensure that their
services do not have a negative impact
on the financial wellbeing of the
consumers that use them. For all the
good that BNPL can do for those that
can manage their day-to-day finances,
there are concerns that some users
may be slipping through the cracks.”
The Treasury’s consultation on the
FCA’s regulation of the BNPL sector
included proposals for formal credit
agreements laying out the terms of
deals when people take them out, and
for retailers promoting the services
to ensure people understand the
risks they are taking. It also suggests
section 75 of the Consumer Credit Act
should apply, making BNPL providers
jointly liable for the contract with the
retailer in the same way that credit
card providers are.
Brave | Curious | Resilient / www.cicm.com / January & February 2022 / PAGE 5