We urge the government to be vigilant against unauthorised BNPL lending

We’ve warned the government that its proposed regulation of the buy now, pay later (BNPL) sector could see a rise in large retailers offering unregulated credit direct to their customers so they fall outside the scope of the new regime.

The current proposals only apply to third-party lenders. This means shops with significant financial resources could start offering their own form of BNPL credit without being held to the same standards as authorised providers.

If the retail sector were to move in this way, there would be two very different types of BNPL lending – one authorised (from third-party lenders) and one unauthorised (direct from retailers).

This would mean the issues the government is keen to address would only be partially tackled and customers would likely be confused about different rights and protections under similar agreements.

What is BNPL?

BNPL was originally a payment option offered by retailers to allow customers to spread the cost of high-ticket items e.g. sofas, TVs, white goods etc.

Why does BNPL need regulating?

Over the last few years, there’s been a rise in the availability of BNPL, with many online retailers offering this payment method for a vast array of items, even those of very little cost.

Although BNPL can provide people with a valuable payment option, the rise in its use has started to harm some customers. This is typically the case when people are using it to cover day-to-day living expenses rather than large one-off items.

Many of the people who come to us for debt advice have numerous BNPL accounts spread across multiple providers. As these loans are offered and managed in isolation of each other, credit is being offered in cases where it’s not affordable for the customer.

Our figures

In the space of a year, we’ve seen the number of people coming to us for advice who have BNPL debts triple, up from 408 in August 2023 to 1,258 in the same month this year.

The average amount of BNPL debt per person has fallen in that time. But the number of BNPL debts per person has increased. This means people are more often using it for smaller amounts and increasingly to cover the cost of essentials.

A significant number of our customers are opting for BNPL as it’s easy to get and they’re unable to access other forms of credit. The reality is they probably wouldn’t be able to get BNPL if providers were carrying out affordability checks.

The government’s plans

We back the government’s plans to:

• introduce affordability checks for BNPL
• make sure customers receive simple, understandable information before, during and after taking out BNPL
• offer protection to BNPL customers when things go wrong and refer those in financial difficulty for debt advice

Call for vigilance

We appreciate that it isn't a straightforward matter to include all companies that lend directly in the scope of the new regime, particularly small firms that simply invoice their customers.

And we welcome the government’s acknowledgement that descoping all retailers poses a potential risk, and its commitment to monitor the market and intervene if this issue becomes problematic.

We would just urge the government to be vigilant in this regard to prevent the emergence of a confusing two-tier system of BNPL that could harm more financially vulnerable people across the UK.