Huge Buy Now, Pay Later change could stop users from getting a mortgage or credit card in the future
Posted on in Business News , Cycles News
Buy 
Now,
Pay Later purchases are set to appear on credit reports for the first
time, meaning lenders will be able to see the borrowing.
BNPL is available at online checkouts at high street shop websites including H&M and Asos. It lets you buy things now and pay for them at a later date, usually within 30 days, interest-free.
Millions of shoppers now use BNPL companies like Klarna, Laybuy and Clearpay. When using BNPL, a "soft check" of eligibility is made, but this does not appear on shopper's credit histories - unless you're taking out longer finance terms, like repayments over three, six or 12 months. BNPL also does not impact credit scores, unless you miss repayments, and debts can also be passed on to debt collection agencies.
But that will change as TransUnion will start including the borrowing on credit reports later this year. It means some BNPL borrowing will now be seen for the first time on people's credit reports and can be viewed by lenders.
Lenders use credit reports to decide if they will let you borrow money and how much, for things like mortgages and credit cards. They make a decision based on a number of factors, like if you've kept up with repayments and how much money you've borrowed.
Currently mortgage lenders all take a different approach to BNPL, according to an Investigation by Which?. Although lenders can't see BNPL on your credit file yet, they ask for bank statements to see your spending and payments, and can see BNPL transactions there. Some banks also ask specific questions about it when you're applying for a mortgage in principle.
BNPL to become regulated "as a matter of urgency"
The BNPL market is currently unregulated and providers are not required to perform full affordability checks on consumers. This means that users can accumulate debts across various lenders.
In response to concerns across the market, the government announced that BNPL would be regulated by the Financial Conduct Authority (FCA), with legislation likely to take effect later this year. The Woolard Review, a report commissioned by the FCA to review the market, concluded that BNPL firms should be regulated "as a matter of urgency."
"Most of us will use credit at some point in our lives. So, it's vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty," stated chair of the review, Christopher Woolard.
He went on to say "Changes are urgently needed to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic."
As the managing director of Payl8r - one of only two regulated BNPL firms - Samantha Fogerty believes that regulation is long overdue in the BNPL sector.
"More than 17 million UK consumers have used BNPL and usage is reported to have quadrupled in 2020 alone," Fogerty begins.
"Regulation is needed to help protect consumers and ensure there's a level playing field among BNPL firms."
The rise of BNPL has been meteoric and the service remains very popular. However, as the future FCA regulation demonstrates, providers must learn to adapt.
Find out more
The ACT has previously raised concerns about the improper regulation of
BNPL providers and the risks that this brings to potential customers.
It may be worth having a recap of the ‘Avoid the pitfalls' mini-series that the ACT published to answer the trade's questions about selecting the most suitable retail finance provider.
Key topics examined are why low rates can equal lost sales, the importance of checking the finer details of your agreement and why you should identify who actually lends the money when selecting your provider.
Choosing a finance provider, avoid the pitfalls #1
Choosing a finance provider, avoid the pitfalls #2
Choosing a finance provider, avoid the pitfalls #3
If you would like to talk to someone from the ACT or ActSmart about how we can help find the right finance provider for you please get in touch.
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