Charities and consumer advocates have written an open letter to Chancellor Jeremy Hunt, following speculation that a crackdown on the buy now, pay later sector could potentially be shelved.
Citizens Advice, along with representatives from MoneySavingExpert, Which?, StepChange, the Money Advice Trust, and Christians Against Poverty have written to Mr Hunt.
The letter says: “With the mounting pressure of the cost-of-living crisis, the provision of interest-free credit might look like part of the solution for people struggling with bills.
“But unaffordable credit which can lead to spiralling debt is never a solution.
“Citizens Advice’s most recent cost-of-living tracker shows over one in six people with BNPL (buy now, pay later) say they are currently behind on payments. This rises to over one in three when we look at people on universal credit.
Government must ensure that BNPL lenders are obliged to carry out affordability checks to protect against unsustainable borrowing— Letter to Chancellor Jeremy Hunt
“This is why regulation is more important than ever. Government must ensure that BNPL lenders are obliged to carry out affordability checks to protect against unsustainable borrowing.
“Whilst many are turning to BNPL to pay for essentials, it is also compounding people’s financial hardship in the cost-of-living context.
“We are particularly concerned that those already struggling to make ends meet are most likely to use BNPL because there are currently no safeguards in place to prevent people already grappling with debt to sign up.”
The letter adds: “To pause now, or to delay the process by merging it with the longer timelines of the review of the Consumer Credit Act, would leave people needlessly exposed to harm. We are calling for the Government to stay the course on this and for the draft legislation to be implemented at pace to protect consumers.
“We are clear that BNPL is part of the credit industry and must be regulated as such to protect consumers.”
The letter was sent after Sky News reported that Treasury officials had been told during recent talks with the industry that some of its biggest players could quit the UK market if “heavy-handed” regulation took place.
In February, a consultation was launched to look at how firms would be brought under the scope of the Financial Conduct Authority (FCA).
The consultation looked at how firms would need to comply with FCA rules, including how they would need to spell out the key information about loans to customers.
The Government previously said the new regulations could help protect an estimated 10 million customers.
Dame Clare Moriarty, chief executive, Citizens Advice; Joanna Elson, chief executive, the Money Advice Trust; Martin Lewis, founder and chair, MoneySavingExpert.com; Vikki Brownridge, chief executive, StepChange Debt Charity; Anabel Hoult, chief executive, Which?; and Lisa Pearce, interim chief executive, Christians Against Poverty put their names to the letter.
A Treasury spokesperson said on Monday: “Regulation of buy now, pay later products must be proportionate so borrowers are protected, while still being able to access these useful interest-free products.
“No decisions have been made as we are reviewing the responses to our recent consultation and will report back in due course.”
