Which? demands stronger safeguards for online shoppers using ‘pay later’ deals

Online shoppers need stronger security to protect them from Buy Now Pay Later (BNPL) products as many fail to realize it is some form of debt, warns a watchdog.

The? said that “most” of the 30 BNPL users surveyed did not view the schemes as a form of credit, which means they could unknowingly expose themselves to serious risks of non-repayment, such as collectors, the consumer group said.

Instead, users referred to BNPL as a “payment method” or “money management tool” rather than a loan provider.

For example, while BNPL programs are a form of credit, not all do tough credit checks and users can usually sign up for a plan with just a few clicks.

The? noted that this speed and simplicity of choosing BNPL at checkout contributed to the misunderstanding among users.

BNPL has grown in popularity in recent years as a means of payment for goods and services, with the largest provider Klarna now serving 13 million customers in the UK.

The investigation also found a low level of commitment to the terms and conditions of the BNPL providers. Most of the BNPL users said they either skipped over the Terms and Conditions or simply checked a box to say they read them in full.

As a result, some users had a limited understanding of the consequences of missing payments, and some participants were unaware of late payment fees at all.

The? also found that BNPL users did not think they might have difficulty making repayments and many mistakenly believed the systems were being regulated.

The lack of understanding of BNPL products was particularly worrying as previous research found that people were more likely to use them during stressful and challenging times in their lives, the consumer group said.

Missing a loan repayment or bill, or witnessing an important life event like marriage, baby birth, moving or being laid off increases the likelihood of using BNPL by about a third, previous studies found.

The? calls for stronger safeguards to protect consumers, including steps in the checkout process to ensure people understand they are borrowing from using BNPL and warnings about the risks of using the systems.

Important information such as payment terms, late fees and the potential consequences of missed payments should be disclosed at the time of the transaction to help consumers make informed decisions, the group said.

Affordability assessments should also be carried out for all BNPL transactions prior to the introduction of regulation.

The? Rocio Concha, Director of Policy and Advocacy, said, “BNPL programs can provide speed and convenience at the checkout, but our research shows that many users fail to realize they are taking on debt or considering the prospect of missing payments.

“So there needs to be stronger guarantees to protect consumers and warn of the risks of using the systems. Payment terms, late fees and the possible consequences of missing payments should be communicated at the time of the transaction.

“In addition, there must be no further delays in the plans for BNPL regulation, which should include much greater marketing transparency, information about the risk of missed payments and credit checks before consumers are allowed to use BNPL providers.”

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