Credit, collections & insolvency news
An organisation providing free debt help has warned it is seeing a concerning change in how buy now, pay later (BNPL) is being used.
Money Wellness says it has seen a threefold increase in the number of people seeking debt help with BNPL debts over the past 12 months. But the most significant change is in how consumers are using the payment method.
Data from Money Wellness shows people seeking debt help had an average of 2.3 BNPL debts in the last quarter – up from 1.4 in the same period last year.
At the same time, the average single amount owed on BNPL transactions has reduced from £950 per debt to £330.
This shows that BNPL is now being used more frequently for much smaller transactions. And suggests it’s no longer being used to spread the cost of big-ticket purchases but is, instead, being relied on to plug spending gaps and cover essential bills.
Sebrina McCullough, Director of External Relations at Money Wellness, said “We’re concerned about what the data is showing. Since BNPL first launched in the UK in 2014 it has – in the main – been used to spread the cost of high-value purchases and ‘nice to haves’. But the data shows that things are changing. We are now seeing it being used more frequently by those in crisis, to help stretch household budgets that little bit further. Using BNPL to cover essential bills like food only brings temporary relief. It doesn’t address the fundamental problem of unmanageable debt levels.”
While those seeking debt help have on average 2.3 active BNPL debts, Money Wellness has also supported thousands of customers juggling 60+ active BNPL repayments.
The data also shows on average BNPL debt only makes up 5% of a person’s total debt, which means they’re usually also behind with repayments on unsecured debts, like credit cards and personal loans, as well as priority bills, such as rent/mortgage and utilities.
McCullough added “The people we speak to say they turn to BNPL because they don’t have to undergo affordability checks. Many don’t even think of BNPL as a lending product or recognise that falling behind on repayments can lead to serious consequences, such as additional fees or the prospect of a visit from a debt collector. That is why regulation is so desperately needed to ensure people in vulnerable financial positions are protected from taking on unaffordable debt.”
The findings from Money Wellness come ahead of the government’s own deadline to introduce regulation within its first 100 days in office – in other words, by the end of September. While this will provide greater protection for consumers, it could also bring with it a more stringent recovery process.
McCullough concluded “With regulation on the horizon, it’s within the interest of BNPL providers to tread lightly when it comes to debt collecting. However, once a regulatory framework is established, we believe providers will become more active with their enforcement processes. This could result in millions of struggling consumers being more aggressively pursued for payments and facing hefty penalty charges as a consequence.”
