During Christmas, Black Friday and Cyber Monday, many households across the UK turned to alternative payment methods, including buy now pay later (BNPL), to afford the costs of the seasonal celebrations. However, new research from the Lending Standards Board (LSB), the self-regulatory body for the banking and lending industry, has revealed that families are now seeing unexpected repayment fees in January due to using BNPL services.
The LSB is calling for greater awareness about the risks of using BNPL products and services as it found that only 52 per cent of users are aware of late payment fees. Further showcasing the lack of knowledge surrounding the payment method, only 50 per cent of users knew how much these fees might be before they incurred them.
Additionally, the regulating body also calls for lenders to do a better job with their outreach to customers who may be struggling financially. Thirty-four per cent of British consumers with ‘poor’ or ‘very poor’ credit scores used BNPL, while a further 42 per cent combined BNPL products with credit cards. Furthermore, it found that customers with ‘poor’ or ‘very poor’ credit scores were more likely to have incurred late fees (22 per cent) than those that didn’t (15 per cent).
Looking at the bigger picture, 12 per cent of all customers used BNPL, while 33 per cent combined BNPL products with credit cards. Additionally, 65 per cent of monthly BNPL users thought they would need to access more credit in the next year to cover the rising cost of living, compared to 28 per cent of non-credit users.
Worryingly, over a third (35 per cent) of BNPL users say they often make impulse purchases they later regret, while just 17 per cent of non-BNPL users say the same thing.
Calling for greater regulation
The data also revealed that just over a third of BNPL users (36 per cent) say they only decide to use BNPL at the check-out stage. Meanwhile, three-fifths of BNPL users are unaware that BNPL products are unregulated.
Late last year, the UK Government announced plans to introduce BNPL regulations – but these will not be in place until 2026 at the earliest.
Emma Lovell, the LSB chief executive says: “There is a place for BNPL products in the financial services sector: users say these products help them feel more in control of their spending, or that they have helped them through financially difficult situations. But there are warning signs flashing that these products aren’t always being used in a properly informed or considered way.
“We can see from the data that BNPL users are precisely the kind of consumers that need the most protections and support. The Government’s announcement on BNPL regulation was very welcome, but in the period before regulation comes in, lenders can’t rest on their laurels. More awareness of products and what is required from customers is needed, along with proactive outreach, especially for those experiencing financial difficulty.
“BNPL lenders should consider working towards best practice frameworks in the absence of statutory regulation to keep pace with the latest trends and ensure the best outcome for their customers.”
The post Facing Unexpected Fees in January After Seasonal Spending: LSB Calls for Greater BNPL Regulation appeared first on The Fintech Times.
