BUY now, pay later schemes are to be regulated by the financial watchdog to stop millions of shoppers from plunging into debt.
The Financial Conduct Authority said that bringing the sector under stricter rules was a “matter of urgency”.
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Many high-street stores offer the service, including Marks & Spencer, H&M, Uniqlo, River Island and H Samuel, as well as online shops such as Asos.
The schemes, such as Klarna, Clearpay and Laybuy, let customers pay for their shopping in monthly instalments to spread the cost.
But if you don’t, can’t or forget to make all of the repayments within three months, your debts are referred to a collection agency.
The use of buy now, pay later products nearly quadrupled in 2020 and is now at £2.7 billion.
How to cut the cost of your debt
IF you’re in large amounts of debt it can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money
Work out your budget – by writing down your income and taking away your essential bills such as food and transport
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay
Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further
Groups like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
Around five million people have used these products since the beginning of the coronavirus pandemic, according to the regulator.
In the Woolard review, it found the emergence and expansion of unregulated buy now, pay later products gives consumers a significant alternative to more expensive credit.
But this also comes with significant potential for consumer harm.
For example, more than one in 10 customers of a major bank using buy now, pay later were already in arrears.
Regulation would protect people who use buy now, pay later products and make the market sustainable.
More to follow…
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