Connect with us

Hi, what are you looking for?

Investing

‘Buy now, pay later’ firms such as Klarna to face FCA regulation

Klarna

The City watchdog will be given powers to regulate “buy now, pay later” firms such as Klarna and Clearpay, amid fears that a surge in their popularity during the pandemic could leave consumers with high levels of debt.

The Treasury announced plans to bring the £2.7bn sector under the regulation of the Financial Conduct Authority after a four-month review by the former FCA interim chief executive Chris Woolard.

Companies including Clearpay, Laybuy and industry leader Klarna allow customers to stagger payments for products such as clothes and furniture with no interest or fees – unless they fail to pay back on time. The model is popular with millennials and Generation Z shoppers, who can delay payments for goods at hundreds of retailers including Asos, Boohoo, JD Sports, Hugo Boss and Made.

Bringing them under the FCA’s regulation means firms will have to conduct proper affordability checks before lending and ensure customers are treated fairly if they are struggling to repay the loans.It will also give consumer the right to complain to the Financial Ombudsman Service if things go wrong.

The use of buy now, pay later (BNPL) agreements nearly quadrupled in 2020 and is now at £2.7bn, with 5 million people using these products since the beginning of the coronavirus pandemic, which caused a boom in online shopping. However, the Woolard review warned that BNPL comes with a “significant potential for consumer harm”. For example, more than one in 10 customers of a major bank using buy now, pay later were in arrears.

The FCA is concerned about how easy it has become for consumers to buy more than they could afford and rack up high debts. Some firms initially cap credit limits or do a basic credit check, but this is usually to manage the firm’s own risk rather than confirm that a borrower can afford to repay.

While shoppers tend to borrow about £65 to £75 in a single purchase, customers can also use more than one BNPL provider at the checkout, without their mounting debts being flagged to other firms or lenders.

John Glen, the economic secretary to the Treasury, said: “The review found it would be relatively easy to accrue around £1,000 of debt that credit reference agencies and mainstream lenders cannot see.

“With several buy now, pay later providers planning to expand to higher-value retailers, or offer their products in store, the risk that consumers could take on unaffordable levels of debt is increasing.”

The Treasury expects that – after a consultation with the firms and others involved and legislation – the FCA will be given formal oversight of the sector later this year.

The government has come under pressure to act swiftly, after warnings from more than 70 cross-party MPs that BNPL could be “the next Wonga waiting to happen” – referring to the 2014 crackdown on payday lenders after they drove people into unsustainable debt. Labour MP Stella Creasy, who led the charge, said on Tuesday that “regulation cannot come soon enough”.

Providers including Klarna, Clearpay and Laybuy said they broadly welcomed regulation. Klarna said: “We agree that regulation has not kept pace with new products and changes in consumer behaviour and it is now essential that regulation is modern, proportionate and fit for purpose, reflecting both the digital nature of transactions and evolving consumer preferences.”

Read more:
‘Buy now, pay later’ firms such as Klarna to face FCA regulation

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Economy

THE DEPARTMENT of Agriculture (DA) approved a suggested retail price (SRP) of P125 a kilo for imported red onions in the National Capital Region...

Economy

THE PHILIPPINE ECONOMY could grow by as much as 8-10% if the government can address the gaps in agriculture, investment, and good governance, according...

Economy

By Keisha B. Ta-asan, Reporter GLORIA L. JAPON, a 48-year-old public school teacher from Cavite south of the Philippine capital, admits struggling to pay...

Economy

GLOBE Telecom, Inc. has signed an agreement to lease telecommunications towers in Southern Luzon to a unit of Thailand-based Sky Tower Plc. to monetize...

Economy

A UNIT of listed holding firm A Brown Co., Inc. has secured a P400-million funding for the construction of a commercial electron beam or...

Economy

MANILA Water Co., Inc. on Monday said that it would submit its completion plan to build and operate water, sewerage and sanitation projects until...

You May Also Like

Investing

Browsing history makes referring to sites and pages you’ve visited in the past seamless. It’ll help you recall what page you checked out on...

Investing

The minute that any question pops into your head, you can simply ask Google. No longer do we have to pour over books and...

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Investing

Insomnia is the most common sleep disorder in the global population. Therefore, it is a problem that many people suffer or have suffered throughout...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.