Buy Now Pay Later needs to pay for debt advice

The regulation of Buy Now Pay Later is a long time coming. In the meantime, lenders in this sector haven’t been making any contribution to the funding of debt advice. We therefore welcome Stella Creasy MP’s call – made in Parliament at the start of this week – for government to review its funding model for debt advice and ensure that all firms contributing to debt problems are paying towards the provision of advice services.

Government first announced its intention to bring the sector under FCA regulation in February 2021. Since then, BNPL have been on notice that - amongst other things -they will be required through the financial services levy to contribute to the costs of providing debt advice services. But the delay in regulating BNPL has meant that lenders haven’t paid a penny towards debt advice services in the three years since. And, on the government’s current timescale, they won’t be required to make any contribution until 2026.

This is clearly a travesty. There is plenty of evidence that BNPL has harmed many consumers. FCA concerns date back to at least the Woolard Review of 2021, which highlighted the lack of affordability checks and inconsistent treatment of customers in financial difficulty. The following year:

• Citizens Advice found two-fifths of BNPL customers were borrowing money on overdrafts, payday loans, and credit cards to make their repayments.
• StepChange reported that half of all BNPL customers were finding it difficult to keep up with household bills and credit repayments (compared to 30% of GB adults), rising to 59% among those with two or more BNPL loans.
• Credit Karma reported that 41% of BNPL users had missed a payment and incurred charges in 2022, up from 11% in 2021

In 2023, the Money and Pensions Service reported that a fifth of customers were using BNPL to pay for essentials such as groceries, toiletries, bills or fuel.

And our recent analysis of the Debt Need Survey for 2023 finds that around a third of people who were behind with payments to their consumer credit lenders had also used BNPL in the previous six months. Of these, around two-thirds were experiencing ‘extreme financial pressures’: seldom having money left over after paying for food and bills; frequently borrowing to pay for essentials, or frequently borrowing to pay off debts.

BNPL’s debt for the cost of advice services is long overdue, and, pending regulation, we believe there is a clear case for government to impose a targeted tax on the sector to recover it.

It’s time for #BuyNowtoPayNow.