Lenders who buy now and pay later should be urgently regulated to prevent young consumers from taking on a mountain of debt they might not be able to afford, Labor MP Stella Creasy said.
Creasy, MP for Walthamstow, called a debate in parliament on Tuesday to draw attention to the rapid growth of companies like Klarna.
“I am concerned that the speed at which this industry is moving, with the failure of the government to act so quickly, will have very serious repercussions for consumers this Black Friday and this Christmas,” she told The Guardian, before the debate.
“I think the politicians took comfort in that during the pandemic people paid off their debts, they saved more, they could be in a stronger financial position – but it was only the people who had money to spare. in the first place who were in this position. And there is a growing inequality that we haven’t seen.
She added: “You already have a smoldering fire in debt, and there were people before the pandemic who were using high cost credit cards and loans to cover their costs – already spinning and juggling. And in that picture has come a new form of credit, which is being marketed aggressively and being pushed down their throats with no protection whatsoever. “
Buy-now-pay-tard (BNPL) loan allows consumers to pay for goods in installments instead of covering the full cost up front, and many traditional retailers now offer it to customers as part of their purchases in line.
Citizens Advice, which also calls for the industry to be regulated, recently warned that one in 10 people expect to rely on buy now-pay later to meet Christmas expenses.
Businesses charge no interest, but borrowers who are unable to repay may be charged late fees and be sued by debt collectors.
Research from Citizens Advice found that one in 10 BNPL users – or one in eight younger users – had been sued by a debt collector in the past year. Its policy director, Matthew Upton, recently described its use as “like quicksand”.
Creasy called on retailers to stop using BNFL until it is properly regulated.
The government agreed to regulate BNPL’s lenders after an independent review chaired by city expert Christopher Woolard, published in February, warned the sector represented “significant potential harm to consumers.”
But Creasy points out that the Treasury only released a consultation on how to do it last month, which is not expected to end until the new year, and will be followed by a separate consultation by the regulator, the Financial Conduct Authority ( FCA).
By that time, she says, young consumers will have incurred millions of pounds more in debt.
Creasy had previously campaigned vehemently against payday lender Wonga, which eventually took office after a government crackdown, amid allegations of irresponsible lending.
A spokesperson for Klarna said: “UK consumers are choosing BNPL as a more responsible payment method, saving them money and helping them manage their finances compared to alternatives like credit cards. We offer interest-free, fee-free, short-term BNPL products with structured repayment plans, keeping people out of debt.
An FCA spokesperson said it was essential for the law to adapt to the changing nature of the credit market. “We plan to consult on the new rules shortly after the Treasury consultation ends and they have decided which businesses and activities will be regulated. We are already working on what our regulation of these companies will look like, ”they added.
The Treasury has been approached for comment.