Protect young consumers from misleading Buy Now Pay Later products

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After growing tired of being endlessly exposed to manipulative AD campaigns for products which exploit the vulnerabilities of my generation, particularly women, I’m launching a campaign exposing the stories* of people who have been misled by Buy Now Pay Later (BNPL) services and calling for better regulation to protect consumers.

It’s not news that BNPL is becoming the new normal or even that these products are a cause for concern, however, after hearing from users and in investigating the regulatory standards which exist, I’ve unearthed compelling evidence of alarming malpractice which is being overlooked by the regulators.

*These stories were submitted to the financial Instagram account which I run (@go_fund_yourself_). You can view them here, on the campaign page

BUY NOW PAY LATER IS THE NEW NORMAL

23% of 18 to 24-year-olds have turned to buy now pay later services to fund their spending since the start of lockdown (Compare the Market) 

BUT MANIPULATIVE ADVERTISING PRACTICES AND A LACK OF INFORMATION IS INCREASING THE RISK THAT YOUNG PEOPLE WILL GET INTO PROBLEM DEBT

45% of young people who have used a buy now, pay later scheme in the last year say they have missed at least one payment*

During this time, Klarna revenues (one of the largest BNPL providers) have surged (Sifted)

What is Buy Now Pay Later?

Buy now, pay later (BNPL) is the name for a kind of credit payment (that’s debt to you and me…) that allows you to purchase goods, but pay for them either later or by instalments. In recent years, new digital payment providers have emerged, pitched at online shoppers who “wanna cop some new gear but can’t wait until payday”, as JD Sports puts it. They include Clearpay, Klarna, Laybuy, Afterpay and others.

The UK's most popular digital BNPL service is Klarna, accessible via thousands of online and high street shops from ASOS to SpaceNK to BooHoo. You can ‘pay later’ in just one click on pretty much anything, from a £4 scrunchie to some new sneakers. Whilst the value of these items might be small, the consequences of using these products incorrectly, are not. Of the issues identified, I believe Klarna to be the most egregious. 

So what's the issue?

Klarna is a product that has been designed to eliminate the 'pain of paying' and with young women in mind. Take a look at this campaign featuring their investor, Snoop Dog.

Klarna knows that BNPL  gets people to overspend. On their website, they tell their retailers:

A customer's order value increases by 55% when shopping with instalments

BNPL can be useful for consumers and used well, however, there is a risk that without better protection we'll see young people who already face the reality of a debt crisis and recession, under unmanageable financial pressure.

 

I've identified two areas of concern which need addressing in order to mitigate these risks:

1. MISLEADING ADS 

  • BNPL ads do not contain appropriate risk wording, if any. Retailers, who are not regulated are also advertising BNPL products and with no risk wording.​
  • BNPL providers use influencer marketing. Influencers are not required to include any risk wording on posts. Some fail to disclose #ads. ​​
  • BNPL providers use emotionally manipulative advertising which implies that BNPL can afford you a certain lifestyle. See this Killing Eve ad and these Clearpay IG posts from Bare Minerals
  • ​​BNPL ads often confuse customers and take advantage of a lack of financial literacy. For example: 

    Klarna has three similarly named products. Two require a soft credit check which cannot impact your score upon application and another which requires a hard credit check which can impact your score on application. 77% of consumers do not understand the difference between soft and hard credit checks*. Klarna has previously stated on ads ‘no impact on your credit score’. This is confusing for consumers and also fails to acknowledge that ALL of their BNPL products can lead to your score being harmed when you fail to pay and that your debt will be sold to a collection agency. 
    Klarna ads have also stated ‘no interest, no fees, never’. This does not apply to all products and is also confusing for consumers

    *TSB - Research conducted by OnePoll: 2,000 respondents.

2. LACK OF CONSUMER PROTECTION

  • On several sites, BNPL is the default payment option. We've had reports from some consumers who've accidentally used BNPL
  • Unless customers read the terms and conditions, there is no information about the consequences of non-payment at checkout. In fact, customers are given a false sense of security with wording like 'sit back and relax' 
  • The FCA does not provide explicit guidance as to how the risks of BNPL products should be articulated fully, specifically damage to credit score or selling of debt to a collection agency.
  • Klarna are dishonest about the possible consequences of not making a payment. On the Klarna website :
    • 'Your credit score will not be impacted by using Klarna’s ‘Pay later’ products even if you have failed to pay on time.'
      This is NOT true. According to their terms and conditions: 

      ​​“If we are unable to take the outstanding amount on the third instalment we may invoice you the remaining amount for immediate payment or follow our debt collection procedures where you will have to pay all reasonable costs incurred by Klarna and/or the debt collection agency.”

      Being referred to a debt collection agency will impact your credit score but Klarna makes it very difficult to find this information. Combined with misleading ads, this heightens the risk of consumers underestimating the importance of using these products wisely. 

 

What the regulator says 

I raised these issues with the FCA who said: 

“We agree that information needs to be clear and comprehensible, although we do not consider it needs to be in a prescribed format or include worked examples. It is more important that firms have the flexibility to be able to tailor their communications for their customers, bearing in mind their knowledge of how their customers react to different forms of disclosure.”


THIS IS NOT ENOUGH. BNPL can be useful for consumers and used well, however, there is a risk that without better protection we'll see young people who already face the reality of a debt crisis and recession, under unmanageable financial pressure.

PROPOSED SOLUTIONS

Improve advertising standards

  • For the ASA/FCA to develop new standards around the advertising of BNPL products, akin to the guidance around gambling
  • For the ASA to update influencer guidelines around financial product promotion, requiring campaigns to contain appropriate risk wording and enforced #ad disclosure
  • For retailers promoting BNPL to be held to the same standards. BNPL should never be the default payment option
  • For appropriate risk wording to be enforced on all ads. This should include a reference to the consequences of non-payment e.g damaged credit score

Protect consumers

  • For BNPL services to include warnings at the point of purchase informing customers about the consequences of non-payment
  • For Klarna to amend their wording and information provided on credit score risk
  • For the FCA to require firms to market BNPL as credit
  • For customers to be given guidance at the point of purchase about how to use BNPL services 

Please help me say no to bad practice and help protect vulnerable consumers