Charity Citizens Advice said it is ready to support consumers in the new year after a survey found more than one in four Britons are expected to use unregulated buy now, pay later (BNPL) loans to help with their downturn costs. Christmas expenses. .
The survey of more than 2,100 adults found that up to 28 per cent planned to use unregulated credit to get through Christmas.
Critics warn that unlike other forms of credit, BNPL loans do not require an affordability test. Citizens Advice, a consumer group Which?, and MoneySavingExpert have called on ministers to regulate the sector to better protect users.
Several other debt charities, such as StepChange and Christians Against Poverty, said that of the many people struggling with their day-to-day finances (without the added stress of Christmas), more than one in ten of their clients with crippling debt have BNPL debt.
A survey by the Financial Conduct Authority found that around 14 million people in the UK (27 per cent of adults) used BNPL in the six months to January 2023, up from 17 per cent in the 12 months to May 2022.
Citizens Advice has warned that regulatory delays are leaving consumers in a huge debt trap.
More than one in five BNPL loan users have missed or fallen behind on payments in the past year, leaving many at risk of legal action, the study found.
Almost three in ten (29 per cent) with outstanding BNPL payments have borrowed money to pay off their bets, leading to more debt.
The charity said the number of people seeking help with BNPL debt increased by 67 per cent last year.
Rocio Concha, Of Which?, described the survey results as “worrying”.
“Our research shows that many BNPL users are unaware they are in debt or aware of the possibility of default, which could lead to unlimited costs.
“BNPL regulation is urgently needed. The government has no excuse for surrender and must provide consumers with greater protection and warn them of the risks of such schemes.”
Which? said more transparency and information about the risks of missed payments and credit checks is needed before consumers are allowed to take advantage of them.
Dame Claire Moriarty, chief executive of Citizens Advice, said the need for regulation was “urgent” as more people turned to it.
“Now, with so many households already struggling financially, taking out a BNPL loan for extra Christmas expenses threatens to be a decisive blow. This should raise alarm bells for the government, which has been hesitant to regulate the sector for too long.
“As the use of this form of credit increases, the impact of the lack of regulation will become impossible to ignore.
“Consumers are left in the lurch, and as a result, 2024 could be marred by unmanageable debt, bad credit and bailiffs knocking on their doors.”
The Treasury said that when used “correctly” BNPL was a useful and interest-free way for consumers to manage their money. The Ministry of Finance is discussing regulations.
Source: I News
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