The Financial Conduct Authority (FCA) says the cost-of-living crunch is pushing people toward payday loans and buy-now pay-later (BNPL) products.
In a speech, the regulator’s Chief Executive, Nikhil Rathi, warned that rising prices have pushed people into debt, with many still unable to access financial products.
The regulators analysis shows that the number of people in financial difficulty rose from 8% in May 2022 to 11% in January 2023, meaning 5.6m people are now in financial trouble while the proportion finding it a heavy burden to pay bills increased from 15% to 21% in the same period. It also shows that 1.1 million people – 2.1% of the population – are without a bank account and unable to access normal credit products.
The number of adults finding it a “heavy burden” to pay bills increased from 15 per cent to 21 in the same period.
Rathi warned that the squeeze was making some customers ineligible for mainstream credit products and tipping them into debt via others products. Rathi said “The rise in the appeal of Buy Now Pay Later products and payday loans is unsurprising. We’ve capped the cost of payday lending, and following recommendations we made 3 years ago, we stand ready to regulate the buy now pay later sector to make sure consumers can continue to benefit from innovation and maintain access to affordable credit, whilst being treated fairly.”
Rathi also highlighted that the FCA has secured changes to potentially unfair and unclear terms in the contracts of BNPL firms Clearpay, Klarna, Laybuy and Openpay.