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Calls for stronger BNPL safeguards as borrowers fail to understand risks

Emma Lunn
Written By:
Emma Lunn

Which? is calling for more protection for borrowers who use buy now pay later (BNPL) payment options.

A study by the consumer champion found that many people don’t think that they are taking on debt when using payment services such as Klarna, Clearpay and Laybuy.

BNPL has soared in popularity in recent years as a way for consumers to pay for goods and services. The biggest provider Klarna now boasts 13 million customers in the UK.

Which? carried out in-depth interviews with 30 typical BNPL users, and subsequently raised concerns that shoppers do not fully understand the risks of choosing a ‘pay later’ option at the checkout.

Many of the BNPL users interviewed by Which? didn’t think of BNPL schemes as a form of credit, meaning they could unwittingly be exposing themselves to serious risks of missing repayments, such as late fees, marked credit reports or referral to a debt collector.

Instead, participants described the schemes as a ‘way to pay’ or a ‘money management tool’, rather than a credit provider. One user said: “It allows payments to be spread out for budgeting. It made things possible which in one go would have been extremely difficult and I would have probably had to borrow money from elsewhere.”

Although BNPL schemes are a form of credit, they work differently to more traditional methods of borrowing such as credit cards. Not all BNPL schemes run hard credit checks, for example, and users can normally sign up to a BNPL scheme in a matter of clicks.

Which? research found it was precisely this speed and simplicity when selecting BNPL at the checkout that contributed to users’ misunderstanding. Another user said: “It seems really convenient and no hassle. It just asks a few questions so it doesn’t feel like you’re committing to a credit agreement.”

The research also found low engagement with BNPL providers’ terms and conditions. Most BNPL users said they either skimmed the T&Cs or simply ticked a box to say they had read them in full.

As a result, some users had a limited understanding of the consequences of missing payments, and the safeguards and checks carried out by BNPL providers. Some participants were not aware there were late payment fees at all.

Throughout the research, Which? also found that BNPL users do not consider the prospect they might struggle to make repayments. Many borrowers also wrongly assumed the schemes were regulated. 

Which? said the lack of understanding around BNPL products is particularly concerning given previous Which? research that found people are more likely to be using BNPL at stressful and challenging times in their lives.

Which? is calling for stronger safeguards to protect consumers, including steps in the checkout process to ensure people understand they are borrowing money when using BNPL, and warnings about the risks of using the schemes.

It said that key information, such as payment terms, late fees and the potential consequences of missed payments, should be communicated at the point of transaction to help consumers make informed choices. 

The consumer champion also said that affordability assessments should be carried out for all BNPL transactions ahead of regulation being introduced.

Rocio Concha, Which? director of policy and advocacy, said: “Buy now, pay later (BNPL) schemes can offer speed and convenience at the checkout, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments.

“That is why there must be stronger safeguards to protect consumers and warn about the risks of using the schemes. Payment terms, late fees and the potential consequences of missed payments should be communicated at the point of transaction.

“There must also be no further delay to plans for BNPL regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”