‘Buy Now, Pay Later’ – The Truth About Spreading the Cost

On the 2nd of February 2020, the Financial Conduct Authority (FCA) released the Woolard Review, which included an assessment of the ‘buy now, pay later’ (BNPL) payment options available to consumers, offering recommendations that these lenders should face stricter controls by financial regulators.

The Publication ‘The Woolard Review – A review of Change and Innovation in the Unsecured Credit Market’ took a step back to look at the innovations taking place within the sector, as well as market changes because of the Covid-19 pandemic.

The review included the assessment of unregulated BNPL products and the potential consumer harm that can be caused by increasing debt levels in the current climate.

In his introduction to the review, Christopher Woolard CBE, Chair of the ‘Review of Change and Innovation in the Unsecured Credit Market’ highlighted –

“What emerges from the review is detailed in the following executive summary, but I would draw attention to an urgent need to regulate all buy now pay later (BNPL) products.

While the emergence of unregulated BNPL products has provided a meaningful alternative to payday loans and other forms of credit, BNPL also represents a significant potential consumer harm.

The FCA should work with the government to seek amendments to legislation as soon as possible to ensure such products are regulated by the FCA. Given the immediate passage of the Financial Services Bill…”

How Does BNPL Work?

‘Buy Now, Pay Later’ (BNPL) is a credit feature offered by providers and many of their retail partners that can allow consumers to pay for items over a longer period. Essentially, this is usually an agreed ‘delay period’, which is often offered interest-free (as long as payment commitments are met) where consumers are ‘lent’ the price of the item.

There are several providers of BNPL operating in the UK. Consumers can approach them through their own websites, but retailers often offer this as a payment option through their own online channels.

What do these companies charge?

With most BNPL providers, if you pay within the delay period, you will not be charged any interest on purchases.

Purchases spread across a longer period can have additional interest charges (very often at a higher rate – 39.9% APR as one example).

Missing payments can also be costly, with settlement fees, additional interest, and late payment fees being added to the debt. Defaults can also be potentially recorded on consumer’s credit file, and as with other forms of credit commitment, can impact on the ability to obtain credit further down the line.

The Woolard Review Highlights

The Woolard Review indicated several areas requiring attention, as well as outlining the positive innovations in the market.

The review highlighted spikes in the use of BNPL products, correlating them with the April and November Covid-19 lockdowns. An FCA consumer survey carried out in December 2020, found that 11% of consumers (5 million people) advised they had used a BNPL product since the start of the Covid-19 pandemic.

The reasons offered by consumers for the increased use indicated that this was due to the BNPL product provider’s focus on increasing consumer awareness of their offers, and the increase in the number of retail partners that they had.

Additionally, the survey highlighted another reason for the increased usage – as a way of managing finances as a direct result of financial distress they had experienced during the pandemic.

The review builds on top of rules introduced by the FCA in 2019 in relation to BNPL providers.

2019 Financial Conduct Authority (FCA) Rules

The FCA previously published proposed rules pertaining to BNPL providers –

  • Firms cannot charge backdated interest on amounts of money that have been repaid by the consumer during the BNPL offer period.
  • Firms have to provide better information to consumers about BNPL offers. The information should be more balanced and appropriately reflect the risks as well as the benefits of the product.
  • Firms must give prompts to consumers, to remind them when the offer period is about to end, so that consumers are more likely to repay the credit before they incur interest.

These rules only extended to regulated BNPL providers, with a portion of the market and some providers remaining unregulated.

New Rules

The review highlights new plans, including the need for affordability checks to be carried out by BNPL lenders before agreeing to lend to consumers, particularly to those who are already struggling with repayments, or are classified as ‘vulnerable’.

Alternatives to ‘Buy Now, Pay Later’ (BNPL)

There are alternatives to BNPL options out there. These include applying for credit cards on interest-free offers and other interest-free credit offers that many retailers offer for high-cost items.

The key in any financial situation is to do your homework, consult with specialists for advice, and avoid over stretching your budget. Remember that any form of credit commitment will have to be paid back at some point.

Specialist Help

In our article at the start of the new year, we looked at managing money, assessing your financial situation, planning for the year ahead, and making the most of what you have.

Terrified of answering the telephone? Petrified of opening mail in case it’s another red-letter from a creditor?

You are not alone! By discussing the options that are available with an expert who understands the solutions that are out there, you can find the answer needed to get out of that financial black hole and moving forward with your life.

Advice Direct Scotland have specialist debt advisers who can provide information on a range of issues. You can contact one of our specialist debt advisers on 0808 196 2316. have put together our top tips relating to BNPL products that can be used as a guide to help you avoid the pitfalls associated with this method of purchasing goods –

  • Know the numbers – Understand the potential fees for extended credit periods, potential penalties for late payments, and the potential consequences of defaults on payments.
  • Don’t overstretch yourself – remember that credit commitments eventually have to be paid back.
  • Seek professional advice and compare – If you are unsure about any financial product, seek the advice of an expert. If you decide that a BNPL product is the option for you, research the alternatives and compare the benefits with other providers.
  • Understand your rights in case things go wrong – Different providers may have differing rules in place should there be an issue with the product. Do your homework.
  • Look at alternatives – Saving for purchases is an option, but there are other financial products out there than may be more suitable than BNPL. Consider all of the options available to you.

If you would like advice or guidance on any consumer matter, you can contact on 0808 164 6000. We are open 9am-5pm, Monday-Friday.

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