Complaints to the Financial Ombudsman Service against BNPL firms have jumped 36% over the last three years, highlighting the need to speed up and implement robust regulation of the Buy Now Pay Later (BNPL) market to boost consumer protections.
Complaints against BNPL firms increase 36%
Analysis of exclusive figures from the Financial Ombudsman Service, reveals 220 complaints were made against BNPL firms during 2022, compared to 208 in the previous year and 162 in 2020.
The rise in complaints made against BNPL firms to the Financial Ombudsman Service comes as people are increasingly reliant on BNPL and other credit products as households struggle with rising living costs.
Although the Financial Ombudsman Service is not yet responsible for BNPL complaints, the fact that people are increasingly contacting the service with issues indicates people have nowhere else to turn.
Data from Equifax shows that over 4.1 million shoppers used BNPL products for the first time in 2022 whilst Creditspring’s research reveals that almost a third (29%) of people now use BNPL at least once a month with one in ten (9%) unable to repay the money they owe – rising to 16% for 18-34 year olds.
The Treasury recently announced details of the proposed enforcement powers for the FCA to regulate the BNPL sector as well as an industry consultation.
Incoming regulation is vital to tackle the growing risk of debt many households are facing due to increased reliance on credit and BNPL in particular.
However, misconceptions around the risks of using BNPL are also putting financial strain on borrowers – for example, 8 million people in the UK wrongly believe that you can’t get into debt from using BNPL.
Worryingly, misconceptions are worse amongst the younger generation who use BNPL products most frequently – over half of 18-34 year olds aren’t aware BNPL can lead to debt, compared to a third of all adults in the UK.
“Rising complaints against BNPL firms indicate the desperate need for strong regulation across the sector. However, given it has taken two years to reach this point, we’re unlikely to see the much-needed consumer protections appear anytime soon,” comments Neil Kadagathur, Co-Founder and CEO of Creditspring, comments.
“Household budgets are set to take a further hit over the next few months with another wave of increased costs from rising water bills to council tax hikes.
This will inevitably lead to an even greater reliance on credit products – with BNPL likely to grow in popularity. Borrowers need protection and support now, not in several months or even years’ time when regulation finally kicks in.
If used correctly, BNPL offers more flexibility to UK shoppers. However, like many credit options, these products are offered or promoted in a way that encourages people to use them recklessly.
If people use it for multiple purchases at once, in a couple of months’ time the total repayment amounts due can rapidly spiral out of control.
Borrowers urgently need support now so the onus is on lenders to ensure that they’re educating borrowers over credit the risk, protecting borrowers from debt and lending more responsibly with stringent affordability checks,” Kadagathur concludes.
BNPL providers can charge users interest as well as late fees for missed payments. For example, Clearpay charges a £6 late fee (which can be charged twice on purchases over £24 but capped at 25% of the order’s cost or £36 – whichever is lower).
Similarly, Laybuy also charges a £6 late fee but users can be charged up to four times per purchase – totalling £24.
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