This is a 17 per cent rise on the previous 12 months, with borrowers using this type of credit more likely to be in financial difficulty.
BNPL is a way of paying for something if you can’t afford it straight away. The customer can buy the item and they then have to pay for it in installments.
The research from the Financial Conduct Authority (FCA) found that customers who have used BNPL more than 10 times were over twice as likely as those who hadn’t used it to also have an expensive high-cost credit product.
Further, they’re almost twice as likely to have increased the amount of debt on credit products in the last year.
The regulator also revealed these borrowers were over four times as likely to have missed a credit payment in three of the last six months.
The FCA does not have regulatory oversight over BNPL products but said companies using it must ensure that customer contracts comply with consumer protection.
Further changes to potentially unfair and unclear contract terms
The FCA has used the Consumer Rights Act 2015 to make changes to potentially unclear and unfair BNPL contracts.
It said customers of PayPal and QVC were at risk of harm because of the way some BNPL contracts were drafted.
In response the two companies voluntarily made changes to their continuous payment authority terms to make them easier to understand. PayPal also made its terms which explain what happens if a purchase is cancelled clearer and fairer.
A PayPal spokesperson, said: “As a responsible lender, PayPal voluntarily made changes in July 2023 to legal terms and conditions relating to PayPal Pay in 3. We have worked closely with the regulator over these matters and have now agreed an undertaking with it. This will give further clarity to customers who took out Pay in 3 loans under the old terms.
“PayPal is committed to treating its customers fairly and giving them accurate, easy to understand and transparent information. PayPal takes its regulatory obligations seriously and is fully committed to complying with all applicable laws and regulations.”
A spokesperson for QVC said: “We acted promptly following the FCA’s contact and have voluntarily made appropriate changes to our terms so they are easier for customers to understand. We have fully co-operated with the FCA in resolving their concerns.”
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows a significant increase in the use of BNPL over the past year.
“When used appropriately, the product provides valuable benefits, but we want to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections and are given sufficient information.”
‘BNPL can rapidly become dangerous’
Katja Oakley-Bell, financial planning expert at Quilter, said: “While BNPL services might present themselves as interest-free alternatives, there can be hidden costs.
“Late fees, potential impacts on credit scores, and the temptation to spend beyond one’s means can lead to unintended financial burdens. Financial education should emphasise the importance of reading the fine print and understanding the full implications of any financial commitment.
“Especially in this current cost-of-living crisis budgeting is key and BNPL can disrupt traditional budgeting methods by allowing consumers to acquire goods without immediate payment. This can lead to overspending, as the delayed payments might make costs seem more manageable than they truly are. For those who are not regularly budgeting, BNPL can rapidly become dangerous.”
‘Actively challenge any spending through BNPL’
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The best way to protect yourself is to actively challenge any spending through BNPL. If it’s something you need, can afford, and you’re completely on top of repayments, then you may want to use it to spread the cost.
“However, if you’re taking on more debt than you can manage, juggling it with other forms of borrowing, or getting in over your head, there’s a real risk it’s doing more harm than good.
“It’s worth taking stock. Some people will be able to work their way out of a debt issue with careful budgeting and repayment. However, if the problem has gone too far for you to see a way out, you may want to get help from a debt charity.”
