Rise in Unregulated ‘Buy Now, Pay Later’ Loans Adds to UK’s Cost of Living Crisis

Britons are increasingly turning to unregulated “buy now, late loans” to pay their bills, the Financial Conduct Authority (FCA) said on Tuesday. This is the latest sign that the cost of living crisis in the country continues.

Companies offering buy-now-pay-later (BNPL) unsecured loans are not regulated by the FCA, although it has used UK consumer law to make contracts fairer.

The government introduced a draft law (link) in February to regulate the business.

The regulator said its latest financial circumstances survey showed that 27 percent of adults in the UK, or about 14 million people, used BNPL at least once in the six months to January 2023, up from 17 percent in the 12 months to May 2022.

Since then, Bank of England interest rates have continued to rise, making loans more expensive.

BNPL is awarded over a short period of time to customers purchasing clothing or other retail goods. Frequent users are more likely to be in financial difficulty and have already defaulted on a bill or credit obligation, according to the FCA.

The regulator said it was concerned that PayPal and QVC customers were at risk of harm because of the way some of the contract terms were worded.

“As a result of the FCA’s continued attention to this area, both firms have voluntarily made their terms of ongoing payment authority clearer – and PayPal has made the terms clearer in relation to what happens if a consumer cancels the credit-funded purchase and fairer,” the FCA said in a statement.

In 2022, the FCA asked Clearpay, Klarna, Laybuy and Openpay to change their contracts.

“However, we want to ensure that consumers, particularly those in vulnerable situations, are adequately protected and provided with sufficient information,” said Sheldon Mills, FCA executive director of consumers and competition.