Rachel Fergusson, External Affairs Intern, Money and Mental Health

Buy Now Pay Later and mental health - what’s the cost?

23 November 2021

这是一个周二的晚上,你在ASOS上漫无目的地滚动。一件缎面中长裙吸引了你的眼球——它看起来很像凯莉·詹娜昨晚在Instagram上穿的那件。Rent came out a couple of days ago and there’s still ten days until pay day, but there’s a red‘low in stock’ label tagged to the top of the advert and the dress would be perfect for your friend’s birthday party this weekend. While hovering at the checkout, you spot an option to ‘buy now and pay later’ – some of your friends have used it and, right now, it’s tempting. But is it a good idea?

Buy Now Pay Later (BNPL) services can be useful in helping people manage their costs, but for some it can be a gateway to falling into debt. And with the bombardment of flash sales and short term offers around Black Friday — which takes place this Friday — the temptation to spend is greater than at any other point in the year. The allure of BNPL is clear, but with the risks it carries for those in financially precarious circumstances- and those with mental health problems – regulators and providers must act quickly to make it a safe option for all.

The rise of Buy Now Pay Later

像Klarna和ClearPay这样的BNPL供应商——它们允许消费者在几个月内分摊商品成本,通常没有利息——可以在大多数在线零售商的结帐处购买。在过去的几年里,该行业迅速扩张,9月份Monzo成为第一家为客户提供BNPL服务的英国银行。BNPL交易大大减少了“付款之痛”,许多财政紧张的消费者发现延迟或分散付款是有用的。But there are big concerns around the current lack of regulation around BNPL, leaving consumers at risk of buying more than they can afford and getting into debt.

BNPL, Mental Health and Debt

BNPL is undoubtedly convenient, but at what cost? The main concern raised by debt charities and consumer groups is about affordability.Our researchsuggests this type of payment makes it easier to spend, and we found four in ten (43%) users felt the option to pay later encouraged them to spend more than they can afford. A recent study by Citizens Advice revealed thattwo in five users struggled to meet a BNPL repayment in the last year.

“Itwas never clear about the buy now pay later process. I found it difficult to keep track of how much I had paid/owed.” Research Community Member

For people with mental health problems, BNPL can pose particular risks. Common symptoms of mental health problems, such as impulsivity, memory loss and difficulties with organisation, make it harder for someone to manage their finances and keep up with repayments. People experiencing low motivation may also find it difficult or overwhelming to read through the small print, leaving them unclear about how BNPL works and what happens if you miss a payment.

“这是一个如此简单的选择,感觉购买没有任何成本,但当付款到期后,它是负担不起的。”研究Community Member

The financial and mental health consequences of missing payments and getting into debt can be devastating. Charities have warned that BNPL deals are a ‘slippery slope into debt’, after research found that a staggeringone in ten users had subsequently been chased by debt collectors. We know that debt has a significant impact on mental health and wellbeing, withpeople in problem debt three times as likely to have thought about suicide. Without regulation, vulnerable customers are left exposed to these risks without adequate protections.

Regulation now, not later

In February, the Treasury announced all BNPL products would come under regulation by the Financial Conduct Authority (FCA) following areviewwhich found there was ‘significant potential’ for harm. This ruling means that BNPL providers will have to provide better consumer protections, including a requirement to undertake affordability checks.

The Treasury has now launched aconsultationsetting out its plans to regulate the UK’s BNPL industry. While these are welcome moves, regulation won’t take effect any time soon. With the consultation running until early January, and an FCA consultation to follow, it could be late next year or even 2023 before new rules come into force. This protracted timeline is leaving consumers unprotected and at risk of spending more than they can afford. With stark rises in living costs, the coming months are going to be a difficult time for many – meaning more people may use BNPL to ease costs. A recent survey found thatone in ten people in the UK are planning to use BNPL to pay for part of their Christmas shopping.

Protecting vulnerable consumers should be a top priority for providers, regulators and the government alike. For this reason, the government and FCA must take action to regulate the sector as soon as possible. Convenience should never be at the cost of financial security or good mental health.