Buy-now-pay-later lenders should be regulated urgently to prevent young consumers taking on a mountain of debt they may be unable to afford, the Labour MP Stella Creasy has said.
Creasy, the MP for Walthamstow, called a debate in parliament on Tuesday to draw attention to the rapid growth of companies such as Klarna.
“My concern is that the speed at which this industry is moving, with the failure of the government to act as quickly, will have very severe repercussions for consumers this Black Friday, and this Christmas,” she told the Guardian, in advance of the debate.
“I think politicians have consoled themselves that during the pandemic people have paid down their debts, they’ve saved more, they might be in a stronger financial position – but it’s only those people who had money to save in the first place who were in that position. And there is a growing inequality that we haven’t picked up on.”
She added: “You’ve already got a smouldering fire of debt, and there were people before the pandemic who were using credit cards and high-cost loans to cover their costs – who were already spinning and juggling. And into that picture has come a new form of credit, that is being aggressively marketed and shoved down their throats, without any protection at all.”
Buy-now-pay-later (BNPL) lending allows consumers to pay for goods in several instalments instead of meeting the full cost up front, and many mainstream retailers now offer it to customers as a routine part of online shopping.
Citizens Advice, which is also calling for the sector to be regulated, recently warned that one in 10 people are expecting to rely on buy-now-pay-later to cope with Christmas spending.
The firms charge no interest, but borrowers unable to meet repayments can find themselves charged late payment fees and pursued by debt collectors.
Citizens Advice research found that one in 10 BNPL users – or one in eight younger users – had been chased by a debt collector over the past year. Its director of policy, Matthew Upton, recently described using it as, “like quicksand”.
Creasy called on retailers to stop using BNFL until it is properly regulated.
The government agreed to regulate BNPL lenders after an independent review chaired by City expert Christopher Woolard, published in February, warned that the sector represented a “significant potential consumer harm”.
But Creasy points out that the Treasury only published a consultation on how to do that last month, which is not due to close until the new year, and will be followed by a separate consultation by the regulator, the Financial Conduct Authority (FCA).
By that time, she says, young consumers will have taken on millions of pounds more in debt.
Creasy previously campaigned vociferously against the payday lender Wonga, which ultimately went into administration after a government crackdown, amid allegations of irresponsible lending.
A Klarna spokesperson said: “UK consumers are choosing BNPL as a more responsible way to pay, saving them money and helping them manage their finances compared to alternatives like credit cards. We offer short-term interest- and fee-free BNPL products with structured repayment plans, keeping people out of debt.”
A spokesperson for the FCA said it was vital that the law kept pace with the changing nature of the credit market. “We plan to consult on new rules soon after the Treasury’s consultation is finished and they have decided which firms and activities will be regulated. We are already working on what our regulation of these firms will look like,” they added.
The Treasury was approached for comment.