Shoppers make their way along Oxford Street during Black Friday in central London on November 26, 2021. Photo: AFP
As UK shoppers brace for a multi-billion pound Black Friday and Christmas craze, lawmakers have called for urgent ‘buy now, pay later’ (BNPL) regulation of fintech services, which they say lead many people to spend beyond their means.
Britain has seen an explosion of online platforms such as Klarna, Clearpay and Laybuy, which allow consumers to purchase interest-free goods and spread payments.
“I’m really worried about the number of people going into debt this Christmas as these companies push them to spend more than they can afford,” MP Stella Creasy told the Thomson Reuters Foundation, accusing lenders of behavior “predator”.
Black Friday kicks off the Christmas shopping season when retailers offer big discounts on everything from toys to TVs.
Almost 10% of Britons plan to use the “buy now, pay later” options for their Christmas shopping, according to the charity Citizens Advice.
But Creasy said the combination of Black Friday promotions and “pay later” platforms was “like throwing gasoline on fire,” especially for those struggling financially because of the pandemic.
She warned people were at risk of racking up unmanageable debt as retailers urged them to do everything for Christmas after the 2020 celebrations were lifted due to the surge in COVID-19 cases.
Lawmakers, who debated the issue in parliament this week, urged the government to publicize the risks of the borrowing mechanism before the holiday season.
Critics say the platforms risk normalizing and glorifying debt – charges strongly refuted by Klarna and other lenders.
A spokesperson for Klarna said consumers are turning to BNPL because credit cards charge sky-high interest rates and use “dirty stuff” to trap people in debt.
“Buy now, pay later” is also booming in other countries, including the United States, Australia and elsewhere in Europe, in part spurred by the increase in online shopping during the pandemic.
In Britain, transactions more than tripled in 2020 to reach a value of 2.7 billion pounds ($ 3.6 billion).
But Citizens Advice likened BNPL’s loans to “quicksand” – easy to slip in and very hard to get out.
One in 10 users – and one in eight younger users – have been chased by debt collectors in 2020, the charity said in a recent report.
Buyers were charged £ 39million in late fees during that time, with more than half of young users struggling to issue a refund, he added.
The government said it would regulate the sector after an independent review published in February warned it posed “significant potential harm to consumers.”
The Treasury launched a consultation in October that ends in January, but campaigners fear regulation will take another year.
They accused the government of reacting too slowly to a fundamental change in the way people manage their money.
Rather than charging users interest, payment platforms collect fees from retailers.
Opposition Labor MP Creasy said shoppers’ spending increased by 20-30% when using payment options later, making them popular with retailers.
But financial activist Alice Tapper, who made calls for regulation, said the platforms had failed to explain to users that they provide credit and that late payments could result in fees and the need for payment. collection agents.
Lenders also haven’t done full credit checks or known how many other platforms a customer has debts with, she said.
In testimonials collected by Tapper, users said the lack of financial health warnings and promotions by social media influencers made it seem like “free money.”
A 23-year-old woman found herself in debt of 12,500 pounds as she tried to maintain her social media appearances with designer buys.
Tapper said the lack of regulation meant people couldn’t go to the financial mediator if there was a dispute.
Swedish fintech giant Klarna, New Zealanders Laybuy and Clearpay said they support regulation, encourage responsible purchasing and make clear the consequences of late payments.
Klarna and Laybuy said they performed credit checks. Clearpay said it has other protections to keep people from getting into debt.
“Glorify the debt”
Lawmakers have also signaled concerns that some retailers have made BNPL platforms the default payment method on their websites, which Sweden has banned.
Citizens Advice cited the case of a woman in her 60s who was threatened by debt collectors after she unwittingly clicked on a supplier’s link while purchasing plants.
Critics also highlighted concerns over aggressive marketing targeting under-30s and the steps some retailers have taken to offer conditional discounts to a buyer using a BNPL lender.
“The way these products are presented as safe, harmless – almost fun – is a concern,” Tapper said. “They risk glorifying the debt.”
The UK advertising watchdog banned several Klarna ads in 2020 to suggest people could use credit to improve their moods if they struggled during the pandemic.
Tapper said the industry appeared to have become more responsible since the regulatory discussions, although it still had a long way to go.
She said the “buy now, pay later” model is not inherently bad and could be useful if used well.
“There is potential for [it] to be a brilliant tool of financial inclusion for people who would otherwise be stung by huge interest rates, ”she added.