Online shoppers are being bombarded with Buy Now Pay Later (BNPL) schemes at the checkout, often with no warnings about the risk of late fees or getting into debt, a watchdog has cautioned.
A Which? investigation into 111 major retailers in fashion, baby and child and homewares found 62 offered at least one BNPL scheme at the checkout, and nine – the majority selling baby and children’s products – did not include any information about late fees.
Four in five of the retailers that offered a BNPL option promoted it on their product listing pages which customers were taken to when they clicked to view items and then added them to their basket.
More often than not, Which? found, these ads on product listing pages did not include key information about late fees or credit checks, making it difficult for shoppers to understand the differences between each BNPL provider.
BNPL products are rapidly rising in popularity and allow shoppers to pay for items in 30 days or weekly instalments, interest free.
But failing to keep up payments can affect credit reports and credit scores or potentially see customers referred to a debt collector.
Klarna, Laybuy and Clearpay – the three largest BNPL providers – share guidelines with retailers about how their products should be presented, but Which? found some retailers were not adhering to these.
At the time of the Which? research, Klarna’s advertising guidelines said the following risk warning should always be used: “Please spend responsibly. Borrowing more than you can afford could seriously affect your financial status. Make sure you can afford your monthly repayments on time.”
But Which? could not find this exact wording on 23 retailers’ sites. Although some retailers used similar warnings, others only warned that missing repayments could affect a person’s ability to use Klarna again.
Klarna has since updated the risk warning in its guidelines with different wording and is in the process of communicating this to retailers.
One online shopper told Which? he felt bombarded with different BNPL options when shopping for even relatively inexpensive items.
He said: “I felt I was being pushed into using a BNPL scheme. I can see why people end up struggling. It shocks me how predominant the BNPL message is.”
The Financial Conduct Authority’s Woolard Review, published earlier this year, expressed concerns around how BNPL schemes were presented at checkouts and called for the urgent regulation of the BNPL market. But HM Treasury plans for BNPL regulation are yet to materialise.
Which? head of money Gareth Shaw said: “While BNPL services offer convenience at the checkout, our research shows that online shoppers are being bombarded with these schemes at the biggest retailers, often with no information or warnings about the risks of late fees or getting into debt.
“Failing to communicate these risks could land customers with unexpected charges or impacted credit scores.
“This demonstrates why there should be no further delay to plans for BNPL regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”
A Clearpay spokesman said: “Clearpay enables responsible spending and encourages transparency at the checkout with clear guidelines and support for our retailers.
“A disclaimer about late fees is clearly displayed at checkout before a transaction is completed, and we do not report to credit agencies so customer credit scores are not impacted through using Clearpay.”
Alex Marsh, head of Klarna UK, said: “Our short-term fee and interest-free Buy Now Pay Later products are a consumer-friendly and sustainable alternative to credit cards, which are laden with high interest rates, hidden fees, and encourage minimum payments that cause millions to sink deeper into debt each year.
“We uphold the highest standards with regards to being transparent with our customers through straightforward terms and conditions presented each time a customer selects Klarna at the checkout, and by working closely with merchants to explain our payment options either on their website or within their stores.”
Laybuy managing director and co-founder Gary Rohloff said: “We welcome Which’s findings and believe it’s important that all providers set high standards of transparency and responsibility.
“We work closely with our retail partners to make sure they have the correct information for customers who choose to pay with Laybuy, however we are unable to strictly enforce information displayed on a merchant’s website and it’s important customers ensure they are happy with a merchant’s own terms and conditions before purchasing from them.”
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