Consumer complaints regarding buy-now pay-later (BNPL) financing are increasing in the UK, reflecting the deepening cost-of-living crisis and the growing popularity of spreading the cost of purchases. The Financial Ombudsman Service (FOS) has reported a 36% increase in BNPL complaints from 2020 to 2021, rising from 162 to 220. This rise is attributed to more consumers turning to BNPL as a way to cope with rising prices and limited spending power. Equifax data reveals that 4.1 million consumers used BNPL options for the first time in 2022, and Adobe Analytics research found that BNPL providers accounted for almost £1 in every £8 spent online in January.
To address the issue, the British government plans to bring the BNPL sector under the jurisdiction of the Financial Conduct Authority (FCA) and grant the FCA the power to withdraw authorization from firms in the sector. However, implementing these new regulations will take time, according to Neil Kadagathur, CEO of lending firm Creditspring. He believes that the much-needed consumer protections will not appear anytime soon, given the two-year process it has taken to reach this point.
Under the proposed rules, the FOS will be able to intervene in disputes between shoppers and BNPL lenders. However, concerns have been raised about the FOS’s suitability to police the sector. High case fees may lead BNPL firms to settle disputes before thorough investigation, undermining the regulator’s duty to gain visibility into market problems. A senior BNPL executive has stated that the high case fee incentivizes settling with customers for a smaller amount rather than going through the entire process. While this may not be a bad outcome for the consumer, it diminishes the regulator’s role.
As BNPL financing becomes more popular, striking a balance between consumer flexibility and protection is crucial. Effective regulation and oversight are vital for a fair and transparent BNPL market. Bringing the sector under the FCA’s remit is a step in the right direction, but further measures may be necessary to address the growing concerns and complaints surrounding BNPL financing.
Useful Links:
1. Financial Conduct Authority (FCA) – Buy Now Pay Later
2. Citizens Advice – Buy Now Pay Later
