The Financial Conduct Authority has today confirmed plans to reform the market for "Buy Now, Pay Later" credit deals, which have been blamed for the debt problems of many Scottish households.
The measures will require retailers to present buy now, pay later offers in a clear and balanced way, give people adequate explanations of the costs and potential negative consequences, and prompt people when the 0% interest period is due to expire to give them chance to repay the balance in full before interest is charged.
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.
The new rules, which will come into force in November, could save consumers up to £60 million a year.
In a consultation document submitted to the Financial Conduct Authority (FCA) as part of its investigation into the sector, Citizens Advice Scotland warned earlier this year that one in five of its advisers say that more than half of their clients struggling with finances have taken out such a plan. More than a third of people with BNPL agreements told the advice body that they did not understand the implications of such a loan.
CAS Financial Health spokesman Derek Young described the buy now pay later deal as a "financial trap for the unwary consumer" and welcomed the crackdown - but warned there was more to be done.
He said: “We are particularly pleased to see the changes around backdated interest and the requirement for lenders to be more transparent about their charges. These are significant changes and should help protect many struggling households from falling further into debt.
“We note however that their plans do not include a number of other key recommendations we have made. There is certainly more that can be done to protect consumers, and we will be monitoring closely how these changes work in practice.”
Peter Tutton, head of Policy at debt charity StepChange, said: “The FCA’s changes are modest but welcome, though whether they will fully achieve the objective we would like to see that credit should always be “bought rather than sold” remains questionable. When people’s eyes are on the goods they want to buy, and the credit is being offered through the retailer, it is particularly important that the nature of the credit product being dangled as the means to the desired end is made unequivocally clear.
“It is positive to see the FCA banning the practice of backdating interest on any element of borrowing repaid within the borrower’s 0 per cent interest period. Looking ahead, we would hope to see the FCA take a closer look at the ongoing use of discounts and incentives. We would like the FCA to continue to scrutinise the evidence of consumer harm in this area and ensure consumers are protected against poor practice.”
“Since taking over regulation of consumer credit in 2014, our interventions have made a real difference to consumers, especially to people who use high-cost credit,” said Christopher Woolard, executive director of strategy and competition at the FCA.