YVONNE FOVARGUE MP: The less well off need safer borrowing

This is presented as a convenient payment-by-instalment tool, but the reality is that these are loans, plain and simple.

So, what is the problem? It’s the fact that the BNPL firms tell the shops that they can increase their sales, and they can – perhaps by up to 40% - but only by encouraging customers to buy far more than they need and by building up debt as they struggle to repay.

What many customers don’t realise is that these firms expect their customers to default. It’s part of their ‘business model’. And while they won’t actually fine customers who do, they will pass on the debt to recovery agents and that will affect credit scores and the ability – say – to get a mortgage in the future.

I believe that customers need to be properly protected when it comes to borrowing and lending, but because of a loophole in the law, BNPL firms are not regulated by the FCA, the financial watchdog, and customers are left in the lurch.

This is a loophole that needs to be closed. The Government seemed to agree at one point. In the summer of 2022, the Treasury issued a press release announcing new oversight of the BNPL industry. Soon, it said, ‘millions of people will be protected through strengthening regulation’, while all advertising would now be ‘fair, clear and not misleading’.

Unfortunately, there has been some backtracking on this commitment in recent months. Apparently, ministers are getting cold feet because they believe that the extra costs of complying with regulations could force the leading players, such as Klarna and Clearpay, to simply quit the industry. Meanwhile, we are led to believe, customers would have no choice but to use more expensive forms of credit.

Frankly, this is nonsense. There is no evidence whatsoever that BNPL firms would move on. But, even if they did, the fact remains that the industry needs to be regulated. For a start, the checks they undertake at the moment are lax, with many of their customers having already racked up debt from other borrowing, such as credit cards or store cards.

This means debt is being piled upon debt.

A report last year by OpenMoney, the online financial advice service, found that over a third of people who had purchased items using BNPL schemes struggled to pay them back. This is a problem that has to be addressed.

While I accept that people need access to credit, I can see no benefit in encouraging consumers to take on more and more unmanageable debt.

This is not a question of whether BNPL firms wish to remain in the market, but of ensuring that consumers have all the facts and are able to make properly informed decisions.

I have written to the Treasury asking for their decision to be reversed. I have suggested that ministers should worry less about BNPL firms leaving the market, and more about meeting the borrowing needs of the less well-off and the kinds of products that would work for them.

I believe that would be helpful to everyone.