The petition of residents of the constituency of Linlithgow and East Falkirk,
Declares that buy now, pay later products are becoming increasingly mainstream, with 37% of adults in the IL using an unregulated credit products in the last 12 months, and with many of the most vulnerable people turning to these products to cope with the cost of living crisis; further that Citizens Advice report an increase in people seeking help with these products, with some facing unmanageable debt and requiring food bank referrals and other charitable support, and notes that unregulated Buy Now Pay Later products lack consumer safeguards, such as requirement for firms to carry out affordability checks, brining lenders under the oversight of the Financial Conduct Authority, and ensuring borrowers can take complaints to the Financial Ombudsman Service.
The petitioners therefore request that the House of Commons urge the Government to implement regulation of Buy Now Pay Later products as a matter of urgency, to prevent any more people falling into serious and unmanageable levels of debt.
And the petitioners remain, etc.—[Presented by Martyn Day, Official Report, 16 January 2024; Vol. 743, c. 799.]
[P002893]
Observations from the Economic Secretary to the Treasury (Bim Afolami):
The Government thank the hon. Member for Linlithgow and East Falkirk (Martyn Day) for submitting the petition of behalf of his constituents.
As the petition highlights, buy now, pay later (BNPL) is a popular product: according to data from the Financial Conduct Authority (FCA), it was used by around 14 million people across the UK in the six months to January 2023. The Government are aware of reports suggesting that people are increasingly turning to BNPL due to cost of living pressures and, in particular, using it to buy essential items.
When used responsibly and provided affordably BNPL can be a helpful way for consumers to manage their finances and make purchases. It represents a popular alternative to traditional, interest-bearing forms of credit like credit cards and personal loans. Importantly, for some financially vulnerable consumers it may also provide an alternative to high-cost and illegal lending. BNPL is also interest free, which according to FCA data is why 46% of people chose to use the product in the 12 months to May 2022.
While the Government recognise that there is a potential risk of consumer detriment from BNPL, they have not seen firm evidence indicating that this is widespread or substantive. In fact, there is evidence that BNPL may be working well for many consumers. Evidence from the FCA suggests that consumers have a good understanding of the product, with 88% of users finding it easy to keep track of their repayments.
Because of these factors, the Government’s position has always been that bringing BNPL into regulation must be proportionate so that borrowers are appropriately protected without access to these useful interest-free products being unduly restricted. The Government’s consultation on proposed draft legislation to bring BNPL into regulation closed in April. Responses to this consultation were numerous and substantive, so the Government have been carefully considering stakeholder feedback to ensure a proportionate approach. They will publish a response to the consultation, which will set out next steps, in due course.
The petitioners may be interested to know that while BNPL is unregulated, BNPL users already benefit from broader consumer protection legislation, including on advertising and unfair contract terms. The FCA also has existing powers to take action against firms, which it used as recently as October to secure changes to firms’ potentially unfair and unclear contract terms.
The Government recognise the challenges people face with cost of living increases and over the last two years have demonstrated their commitment to supporting the most vulnerable by providing one of the largest support packages in Europe. Their support to households with the high cost of living will total £104 billion between 2022 and 2025, an average of £3,700 per household.
HM Treasury continues to engage regularly with Citizens Advice and other organisations in the debt advice sector, like the Government-funded Money and Pensions Service, to discuss issues relating to pressures on households. It also continues to draw on research and data from these organisations to inform policy development.