‘Buy now, pay later’ deals blamed for many of Scottish consumers’ debt problems

A large proportion of Scots who seek help for debt problems do so because they have taken out a “buy now, pay later” agreement, Citizens Advice Scotland has said.

PayPal encourages customers to use its credit service. Picture:  Justin Sullivan/Getty
PayPal encourages customers to use its credit service. Picture: Justin Sullivan/Getty

In a consultation document submitted to the Financial Conduct Authority (FCA) as part of its investigation into Buy Now, Pay Later (BNPL) agreements, it said that one in five of its advisers say that more than half of their clients struggling with finances have taken out such a plan.

In addition to traditional hire purchase plans, payment platforms such as PayPal have also started to offer ways that shoppers can buy items and pay for them, but without forking out the full amount.

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The New Zealand payment platform Laybuy has become the latest foreign entrant to the market, launching this month with footwear firm Footasylum as its first partner retailer.

The CAS report said people often misjudged their ability to pay off the balance of their deal in full. Almost half seeking advice about these agreements said they had underestimated the impact of the payment “a great deal” and a further 28 per cent said they had done so “a lot”.

Almost half of people who sought advice from CAS over BNPL arrangements did not perceive the arrangement as a form of debt as they would payday loans or credit cards.

More than a third of people with BNPL agreements said they did not understand the implications of such a loan.

The report said the investigation confirmed fears that there are “structural issues” with BNPL.

It added: “The top two responses relate to attitudes towards BNPL deals and the presentation of them by retailers rather than issues of regulation.”

Citizens Advice also said that any kind of delayed payment deal could prove attractive to people with “limited financial resilience”. It said 21 per cent of people questioned in a recent survey said they would have to borrow or use credit to pay an unexpected bill of £250.

The report pointed to a survey for the Money and Mental Health Policy Institute, which also revealed that people with mental health issues were more likely to spend more than they could afford and were almost twice as likely to buy things on impulse which they did not really need – often using pay later deals.

CAS policy officer Derek Young said: “Last year the Scottish CAB network advised on 133,000 debt cases, including people who have entered into Buy Now Pay Later deals which have become unaffordable.

“Retailers tend to offer these deals without checking whether the buyer can afford the payments, and this can lead to problems later if the buyer can’t complete all payments within the offer period.

“We have made several recommendations to the FCA to help avoid such problems. We would also urge consumers to seek our advice if they are in debt of any kind.”