British bank Barclays has called for more regulation around buy now, pay later products (BNPL) after research revealed a lack of consistent affordability assessments.
The bank claims that many consumers are taking out unregulated BNPL contracts without being in a financially stable position. Its research claims 24% of BNPL users are concerned about their ability to repay bills. This figure increases to 34% among 18- and 34-year-olds.
Furthermore, 31% of people are overwhelmed by the amount coming out of their accounts through these bills.
Barclays stated traditional lending is regulated and requires robust affordability assessments on a customer’s financial circumstances to ensure they can pay the loan back. However, in unregulated lending, these checks are not needed so they are often skipped.
According to its research, this lack of regulation could cause irresponsible lending and people taking out these loans when rejected for traditional lending products.
It claims that 35% of BNPL users admit they picked a BNPL loan because they had insufficient funds in their current or savings account to pay for their purchase. While 10% said it was because their applications for credit cards were rejected.
Worryingly, 23% of 18- and 34-year-olds have needed to reduce their spending on essentials, such as groceries, to keep up with BNPL repayments.
The research also suggests people are racking up big debts due to the ease of applying for loans from multiple lenders. It said 47% of BNPL users have had loans from different providers at the same time. Of these, 60% have had three or more concurrent BNPL providers.
This study states the average BNPL user is currently paying off £293 in loans.
Current regulations mean unregulated short-term, interest-free credit providers do not need to report loans to the Credit Reference Agencies. As a result, a consumer’s monthly BNPL loan repayments are not always visible to other credit providers to factor into their own affordability assessments.
It is clear there is a huge knowledge gap around BNPL services that needs to be addressed. For example, 11% of users believe missing a payment does not impact their credit score. Furthermore,
Barclays Partner Finance CEO Antony Stephen said, “It’s essential that the new rules around BNPL regulation are fit for purpose and protect consumers from spiralling debt. Our research identifies the shortcomings of unregulated short-term interest-free credit options and highlights that people are still not clear on the repercussions of not making repayments.
“Barclays believes all consumer credit products should be subject to the same level of regulation, to avoid an unnecessary two-tier regulatory framework that goes against the best interests of consumers.”
There has been a growing cry for regulations within the BNPL market. However, BNPL players Klarna, Zilch and Affirm recently spoke to FinTech Global to explain they are not the problem.
Alex Marsh, head of UK at Klarna welcomed more regulation for BNPL schemes, He said they “are badly needed as the old banks enter this space, bringing with them dirty tricks and double-digit interest rates. It’s important the regulation protects consumers, not banks, and enables continued innovation, competition and alternatives to high-cost credit, within the appropriate guardrails.”
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