Credit reference agency will add buy now, pay later data to files
The credit reference agency said the move will help protect customers and enable finance providers to have a better picture of their affordability.
It said the data will be phased in from summer 2022 and the move comes after buy now, pay later (BNPL) finance saw unprecedented growth during the pandemic.
According to TransUnion research, more than a third of people (35%) used this payment option in 2021.
Interest-free BNPL schemes are a form of credit and give customers the opportunity to buy something now and pay for it later. But if the debt isn’t cleared, interest and other charges add up.
Following the sector’s growth, the regulator, the Financial Conduct Authority said the payment services will come under its scope, and a review also highlighted the potential risk of consumer detriment in using this option.
Further, the BNPL sector was also criticised for encouraging people to spend more than they could actually afford.
‘Evolutionary milestone for the industry’
TransUnion said that the addition of buy now, pay later data to UK credit files – for the first time – follows “extensive industry debate” and acknowledges a key recommendation of the review.
“Consumer protection has been central to the changes and new search footprints are being introduced to enable consumers and lenders to see applications for this kind of finance”, it said
Shail Deep, chief product officer at TransUnion in the UK, said: “By conducting extensive industry analysis and working with leading global buy now, pay later providers to simulate the impact of buy now, pay later data within our credit bureau, TransUnion has been able to identify the most appropriate way to incorporate the data into our products, in what is an evolutionary milestone for the industry, putting the consumer at the heart of these new developments.
“These changes will be really beneficial for those with thin credit files, supporting financial inclusion and wider access to credit, as well as helping to ensure finance providers have a holistic view of an individual’s borrowing, so they can use these insights to help ensure the right outcomes for consumers.”
‘Appropriate affordability checks are needed’
Jenny Ross, Which? money editor, said: “Buy now, pay later (BNPL) services offer ease and convenience for many shoppers, but our research has found that many people use these schemes without realising they are taking on debt.
“With the cost of living rising, appropriate affordability checks are needed to prevent people from building up debts they may struggle to repay. It’s good to see the industry making moves to better understand people’s BNPL usage.
“There must also be no further delay to BNPL regulation, which should include much better information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”