The Times - UK (2020-08-01)

the times | Saturday August 1 2020 1GM 57

Money

watchdog, and subject to rules about promotion of financial products, but customers cannot complain about pay later products to the ombudsman because they are not technically con- sidered to be credit. Laybuy, a start-up from New Zealand that launched in the UK last year, is not regulated. These forms of payment are exempt from the 1974 Consumer Credit Act because they are paid back in less than a year and do not charge interest. The act protects consumers and forces lenders to be transparent about the risks of taking on debt before a credit agreement is taken out. It mandates cooling-off periods for credit, makes lenders check that borrowers will be able to afford repayments and provides cover for credit card purchases of between £100 and £30,000 if the goods are faulty or fail to arrive. Campaigners are concerned that shoppers who use Klarna, Clearpay and Laybuy are not getting these protections.

Stella Creasy, the Labour MP for Walthamstow in east London, has writ- ten to the Financial Conduct Authority and the Advertising Standards Agency and wants buy now, pay later companies to be fully regulated. She said: “If it looks like a duck and quacks like a duck, it’s a duck. It’s clear that Klarna is a type of credit. Buy now, pay later schemes are being advertised as risk-free and promoted to younger consumers who have fewer assets to draw on if they get into difficulty.” There was a ten-fold rise in young people entering insolvency between 2016 and 2019, according to the accountancy firm RSM. Influencers including models and musicians promote Klarna on social media platforms such as Instagram. The Advertising Standards Authority is considering “proactive action” against the sector, Money understands. Late payments on Klarna are passed on to collectors including UK Search, a debt collection agency in Derbyshire

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ampaigners are calling for buy now, pay later companies such as Klarna to be covered by the same rules that apply to high street banks and payday lenders. A surge in easy credit for online shopping has coincided with a rise in bankruptcies among young people. Fast-fashion labels such as Boohoo and Asos as well as high street stalwarts JD Sports, Halfords and Topshop use the Swedish company Klarna to allow consumers to pay for online shopping. Marks & Spencer uses Clearpay, and WH Smith offers purchases through Laybuy — both credit companies that allow shoppers to buy things without paying there and then. Borrowers choose this option at checkout and put in their debit card de- tails as if they were paying upfront and then usually pay off the debt in instalments over a period of up to three months. Shoppers who use Klarna or Clearpay are not given a full credit check, as they would be for a loan or credit card, but a soft search that scans their credit file. Both companies claim that the money owed does not appear on your credit record, but Klarna’s terms and conditions say that the company and its debt collectors can report the use of pay later schemes and late payments to credit refer- ence agencies. Laybuy performs a hard credit check.

Klarna leads the buy now, pay later market, with 8.2 million customers in the UK, and has become the joint- largest financial technology company in the EU. It tells retailers that shoppers will spend up to 30 per cent more if they can defer some or all of the bill. Klarna says borrowers never pay fees or interest for its primary pay later products. It also offers a separate regulated financing agreement that splits repayments for higher value transac- tions over 6 to 36 months. This does charge fees and interest. The payment deals are available to online shoppers who are over 18 and have a UK bank account. Klarna and Clearpay are regulated by the Financial Conduct Authority, the City

Instant credit firms

are booming, but

they can leave young

shoppers unprotected,

writes Kenza Bryan

End the buy now, pay later trap

Campaigner takes on Klarna

A

lice Tapper, below, said she was threatened with legal action after her #KlarNaa campaign called for greater transparency about buy now, pay later. “Glossy billboards are an unacceptable distraction from what is really going on here: the exploitation of young and vulnerable consumers,” she said. Tapper, 28, wants the Financial Conduct Authority to regulate all such companies. “Consumer regulation was built for an age before algorithms built by fintech companies could make a decision in seconds to sell you credit.” Huw Evans, 29, from Tenby in Pembrokeshire approached Tapper through her Go Fund Yourself campaign website when he noticed a ten-point drop in his credit score after he paid for a watch using Klarna. He said there was no other reason why his score would Young consumers who do not want to brave the high street can shop online and defer payments by using companies such have gone down. as Klarna, run by Sebastian Siemiatkowski, below left. Campaigners have argued that customers need more protections

Should you be buying into the gold rush? Pages 60-61

TIMES PHOTOGRAPHER RICHARD POHLE

credit crackdown

that has a private investigation division. Clearpay allows customers to pay in four instalments with a £6 fee within a day of late payment and a further £6 every seven days, up to a quarter of the value of the purchase. It charges up to £12 per missed instalment. Alice Tapper, the founder of the Go Fund Yourself financial website, has launched #KlarNaa, a campaign calling for greater regulation of the sector. She was approached by Hannah Kelly, 23, a student who has amassed £12,500 of buy now, pay later debt over the past four years. Most of it was spent on clothes and handbags using Laybuy, Klarna and the catalogue company Very. Hannah said: “There were no Continued on page 58

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f you buy something and don’t pay for it there and then, you’ve got a debt. You owe someone money for the item you have received and somewhere along

Shopping trends have moved too fast for regulators. Time to catch up

the line a company has given you credit. This all seems quite straightforward to me. Only, of course, it isn’t, because tech companies have found a way to operate a business model that allows you to buy an item and pay later without it being called credit. What you owe does not appear on your credit file, where other lenders can see it and make sensible decisions about your spending habits or how many outstanding bills you may have. The buy now, pay later companies say that what they offer is not credit, but rather is akin to sending

an invoice to the customer. It’s a technicality. Of course, retailers love this model because it is all so easy and simple and means that shoppers who may not otherwise at that moment have funds to buy something can do so. But make no bones about it, what they offer is all credit. This is why it is vital that buy now, pay later should fall under the Consumer Credit Act. Anything bought with the act has an extra layer of protection, which means if goods are faulty, or the company fails to deliver what was promised, you can get your money

back. Just ask anyone who was owed money by MFI or did not get a refund from an airline, but managed to get it back by using Section 75 of the act how vital it is. Because the buy now, pay later firms aren’t regulated there is no ombudsman to act as an arbitrator when things go wrong. Given the scale of the business being undertaken by these companies, and the manner in which they want to expand, banks should be calling for these debts to be included on credit files. Regulators also need to catch up. The genesis of the Consumer Credit

Act was in 1968, when there were no credit cards, but at the heart of the act was the need to give consumers vital rights when they were using what were in essence buy now, pay later arrangements, such as through catalogues or hire purchase. The principles of the Consumer Credit Act remain — the rules are there to ensure that lending and borrowing is undertaken responsibly. Retailers, buy now, pay later tech companies, and consumer habits have moved too fast for regulators. It’s time for them to catch up before harm is done.

James

Coney

Money

editor

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The Times - UK (2020-08-01)

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