Stella Creasy (Walthamstow) (Lab/Co-op) I beg to move, That this
House has considered promotion and regulation of financial products
on Black Friday It is a pleasure to serve under your
chairmanship today, Mr Robertson. May I associate myself with your
comments? I had the honour and pleasure of taking part in debates
chaired by Sir David. He was always a fair and very fun Chair to
have around; we shall miss him terribly. I want to be clear from
the...Request free trial
(Walthamstow) (Lab/Co-op)
I beg to move,
That this House has considered promotion and regulation of
financial products on Black Friday
It is a pleasure to serve under your chairmanship today, Mr
Robertson. May I associate myself with your comments? I had the
honour and pleasure of taking part in debates chaired by Sir
David. He was always a fair and very fun Chair to have around; we
shall miss him terribly.
I want to be clear from the start that I do not think that
anybody in this room is green—green in the sense of being the
Grinch. This is not a debate about whether people should be able
to spend money, which is a personal decision. As we come up to
Christmas, it is important to recognise that for many families
this year will be an extra special one, given what we have been
through over the past two years. I recognise that it is very
easy, when we talk about consumer credit, to sound like the
Grinch, as though we are saying it is all so complicated and
difficult and that nobody should spend any money. Let me be clear
that it is not my intention to come without good Christmas
cheer.
Indeed, I note that many retailers are taking advantage to
promote the idea that this is the year that one should really
indulge and go all out. Tesco tells us, “Don’t stop me now,” when
it comes to shopping. Argos tells us, “Baubles to last year,” and
Debenham’s says, “Christmas like never before.” Aldi tells us not
to be a Scrooge—at least, I think that is what they are telling
us with the Christmas carrot. Sports Direct is more direct than
ever, telling consumers to “Go all out!”
My point is more simple. We want families to be able to celebrate
with their families and not be worried. One thing we know that
causes the most worry to families is money. We are a nation that
has not done as well in the G7 as some others, but we are second
highest among the G7 countries for household debt. That is one
competition we do not want to win as a nation—but we do. We have
always been more comfortable with borrowing and credit than other
nations.
My point in calling the debate on Black Friday and
the run-up to Christmas is to recognise that this is a time when
for many families getting into debt seems the right thing to do,
because it is about being able to treat loved ones. When we have
had so little time with our loved ones and been so apart—I hope
we can be together this year—being able to do that feels even
more important. As a result, the risks that families face are
even higher.
I recognise that the Minister cares passionately about the
subject and has done a lot of work on it. My call is about how we
will help those families have a good Christmas, so that the new
year is not a time of further worry and distress caused by debt.
The honest truth is that as much as people talk about the
pandemic as a time when some families have paid down debt and
saved money, since they have not been able to go on expensive
foreign holidays, for many others it has been a time of further
financial distress. I used the word “further” critically, because
we are a nation that has a problem with household debt, and has
had that for some time prior to the pandemic.
Prior to the pandemic, Experian found that 40% of people would
not be able to pay their mortgage or rent if it increased by £50
or more a month. Just an extra £50 and they were sunk. A total of
10% of this nation was constantly overdrawn, and that figure has
remained pretty stable for many years. As many as 2.8 million
people have persistent credit card debt, which means that they
are paying more in interest fees and charges than in paying off
the debt.
For some people in this nation, saving is a habit, while for
others it will always be an ambition. Some 34% of adults have
never had any savings or have savings of less than £1,000. There
were many people in this country who were struggling financially
before the pandemic. What the pandemic has done for that group of
people—people for whom a foreign holiday was never a possibility
—is throw into sharp relief just how difficult their finances
were. Many of those are in precarious jobs, such as in retail or
hospitality, and they were hit even harder when the pandemic
came.
(Hornsey and Wood Green)
(Lab)
I thank my hon. Friend for giving way. I place on record her
excellent background in holding to account Wonga and a number of
other loan sharks through other Parliaments, as well as work on
other topics she is well known for. This issue is particularly
important right now, as we come out of coronavirus. Is my hon.
Friend aware that Citizens Advice found that 40% of buy now, pay
later customers have been unable to pay for essentials such as
food, rent or bills? This is a particularly difficult time as
people come back into work, with the insecurity of work
underlined in many of our workplaces, and bills—particularly fuel
bills—going through the roof.
My hon. Friend is absolutely right. If both Scrooge and the
Grinch are misunderstood, I very much believe that buy now, pay
later companies could become the true villains of Christmas
rather than them —[Interruption.] It might be tenuous, Minister,
but it is a link.
I recognise that during the pandemic, debt has become a lot worse
for many people; when I say a lot worse, I mean it is less likely
that they will ever be able to get out of it. Many people live
with debt, and while sometimes it is a debt they can manage, an
awful lot of people are drowning, not waving.
Data from StepChange is clear that as a consequence of the
coronavirus lockdown period, 2.8 million people have fallen into
arrears: most frequently on utilities, as my hon. Friend the
Member for Hornsey and Wood Green () said. That is on fuel and
water, on keeping the basics of the house going. Some 820,000
people have fallen into arrears on their council tax—a debt to
the public sector—and about 500,000 people have fallen into
arrears on their rent. We have seen a massive explosion in the
number of people who will never own their own homes and will
always be in the rental sector, particularly in areas where the
cost of living is particularly high. My constituency has the 10th
highest level of child poverty in the country, and that is
because of the cost of living and the cost of renting in my local
community. We know that those people, who have struggled to stay
in our area, were particularly hit by the restrictions on their
working practices in lockdown and have now found that they simply
cannot afford the roof over their heads.
Little wonder that nearly 4 million of us have borrowed to make
ends meet during the lockdown period, with 1.7 million often
using a credit card, 1.6 million using an overdraft and nearly 1
million using a high-cost credit product. That borrowing is not,
perhaps, the stereotype of borrowing in order to buy goods—going
back to my original point about people wanting to treat a family
member. Instead, people have borrowed during lockdown to keep
things going: to keep food on the table; to keep their car
working, so that when they can go to work, they can get to work;
and, perhaps, to pay for heating, especially in the cold
weather.
It is striking that there has been a 267% increase in the number
of consumer county court judgments issued. Those numbers were
depressed by the covid forbearance measures. I recognise that
schemes such as the furlough scheme and the self-employment
income support scheme helped to mitigate the impact of that. My
point when talking about consumer debt and consumer credit is
that we are coming out of a period when many people were
vulnerable anyway because of long-standing household debts, and
that those debts have been made a lot worse. Add into the mix the
fact that we expect those people to spend money and help to get
our economy back on track. It does not take a rocket scientist to
recognise that at the heart of that mix is something very potent
that could lead to real poverty and destitution for many
people.
(Hampstead and Kilburn)
(Lab)
I congratulate my hon. Friend on all the work that she has done
on this issue, as mentioned by my hon. Friend the Member for
Hornsey and Wood Green (). Let me pick up on the
point my hon. Friend the Member for Walthamstow () is making very powerfully
about people who get into debt and feel pressured into buying
things for their family and friends, especially because this is
the first time for a while that they can celebrate Christmas
properly with family. Recent research by Citizens Advice, which I
have seen, found that 39% of people who have opted to buy now,
pay later online did so without realising that they were signing
up to a high-interest loan. That lack of transparency is very
concerning to me. Does she agree that with pressure on our
constituents to make purchases online before the products are
likely to rise in cost before Christmas, the Government should
set out what they will do in the coming days and weeks to make
sure that people know exactly what they are signing up for when
they take out a buy now, pay later product?
My hon. Friend makes her point incredibly well and she will not
be surprised to learn that, yes, I absolutely agree with her.
Indeed, it is striking that just before the pandemic hit we had
the first year in this country when more purchases were made
online than in bricks-and-mortar shops, and of course during the
pandemic people’s switch to shopping online has become even
starker. The state of our high streets is a debate for another
time, but we have all seen that change and I do not think that it
will go backwards. People’s comfort with shopping online had
already been set in place before the pandemic hit; now, for most
people, that is the first place that they look, rather than the
last.
In 2020, 9 million people were forced to increase their borrowing
to cope with the pandemic. That is a phenomenal statistic. The
press and media have been full of people paying down their debts,
and the silent minority of people for whom debt has increased
have not been heard. Today’s debate is about that group of
people, and what support and advice we are giving them, because,
as my hon. Friend the Member for Hampstead and Kilburn () said, being able to treat our
family members, especially when we have been through such tough
times, becomes even more important for everyone. That means that
we must ensure that everybody can access credit in a fair and
affordable way.
My argument with the Minister today—he will know it, because we
have been having it for many years—is about what more we can do
to ensure that there is a fair and level playing field, that
consumers are armed with the best information and that companies
cannot exploit the situation in which there are so many people in
our communities who are drowning in debt and will never get out
of it. They will always live with a level of debt that might be
exacerbated so that one single thing can tip them over into a
financial crisis, as opposed to just a financial meltdown, which
is what they might be in right now without realising it. Indeed,
many of us may have had the experience of talking to people in
our constituencies who say, “Well, I don’t have any debt”, and
then we ask them if they have a credit card and they say, “Yes,
of course”, as if a credit card is not debt.
My hon. Friends the Members for Hornsey and Wood Green and for
Hampstead and Kilburn are right to prefigure the particular type
of debt that I am concerned about. The Minister knows that I am
concerned about it and I know that he agrees with me that there
is a problem with this type of credit, which needs to be
regulated. My point today about the buy now, pay later industry
is that there are echoes of previous examples in our communities
where new, or relatively new, forms of credit that might have
seemed niche when they first came to the UK market explode very
quickly, become commonplace among millions of people and, without
proper regulation or scrutiny, cause many more people to get into
debt as a result. We saw that with the payday lending industry,
which exploded in the UK in the early 2010s, and the honest truth
is that it took politicians from all sides too long to recognise
just how much damage could be done by a high-interest loan.
Those in the buy now, pay later industry will say that they are
not a payday loan. Indeed, they are not—they are not capped, for
a start, which is one of the things that helps to protect people
from getting into debt through a payday loan. Buy now, pay later
companies will say that they do not charge interest to consumers,
so we should not view them in the same way as payday lenders—that
this is apples and oranges. But both types of high-cost
credit—they are high-cost credit, because they come with late
fees if people do not pay them back on time—share a similar
marketing tactic, which is about forming a habit. It is about
getting people to see them as the main way to make ends meet; the
main way for people to deal with having too much month at the end
of their money.
Whereas the payday lender said, “We’ll give you a short-term loan
and you’ll pay it back very quickly, and you’ll never notice, and
it will just tide you over”, the buy now, pay later companies
say, “Spread the cost. It will make it much more manageable, and
you will be able to get the things that you need at the time that
you want to.” Let me be very clear that for some people, there
may well be a perfectly reasonable use of buy now, pay later, in
the same way that for some people there is a perfectly reasonable
use of a payday loan. The problem is that for many people buy
now, pay later is a form of credit that they cannot afford,
because they cannot afford the goods in the first place.
Experian data shows us that 30% of people using buy now, pay
later say they use it for items that they otherwise could not
afford, and in an environment where inflation might top 4%, where
wages have struggled to keep up and where we have a
cost-of-living crisis, that is pouring fuel on to the fire for
many people and the debt problems that they face.
For those who may not be familiar with buy now, pay later, it is
a simple premise. The payments are spread over a number of weeks
or months with these companies, and there are variations of the
same model. What does that mean for a consumer in practice? A
£100 pair of trainers will, perhaps, suddenly become £25 at the
point of sale, because the £75 will be paid off at later points
throughout the year to recoup the cost. Crucially, the consumer
is not officially paying the fees, because the retailer pays to
use the service, although one innovation we have noticed in the
market in the last year alone has been the move to be able to
allow the company to have a direct relationship with the
consumers. What they call a one-time card can be created and
purchased from a website without the retailer ever being
involved. That in itself is problematic, because it prompts the
question of how they are deciding what someone can afford to
pay.
Let us stick with the original business model. How these
companies make their money is very simple. When a £100 pair of
trainers suddenly looks as if it only costs £25, people think,
“Well, I might buy the trousers and jacket to go with it, because
I thought I was going to spend £100 today, and I’m only spending
£25”. On average, consumers spend 20% to 30% more when they can
spread the payments. For the retailers, it is worth paying the
fees of these companies, because people will spend more and they
will get more purchases from them.
Many retailers are very up front about that. It is a massive part
of their forthcoming business strategy, particularly in relation
to Black Friday and
Christmas, to encourage consumers to use buy now, pay later
because they will end up spending more than they would have done
if they had used another form of credit. I reiterate: for some
people, that may be perfectly reasonable. They are spending
future money, but they have that future money, so it is an
acceptable way to do it. They can splash out this Christmas
knowing that pay packets in January, February and March will
cover the cost. However, a large group of people is spending
money that they simply do not have and getting into debt. As my
hon. Friends the Members for Hornsey and Wood Green and for
Hampstead and Kilburn have pointed out, because this is a new
form of credit, many people do not realise it is a form of credit
and what can happen if they do not pay back. The late fees, the
credit checking, the credit reference agencies and the debt
collection agencies are all part of the mix and experience of
using these companies.
In the pandemic, spending on buy now, pay later has gone up 60%
to 70%. For some age groups in this country now, buy now, pay
later is used more than credit cards. It is a revolution in how
we use credit in this country and it has gone relatively
unnoticed, except by those who cannot afford to pay and have
ended up with a big hole.
My hon. Friend is making an excellent argument. Does she agree
that the quality of financial education in the UK is not what it
should be? The 60% to 70% increase in debt from these sort of
products would primarily affect a younger age group to begin
with, because of their propensity to use the internet. Does she
agree that much more needs to be done on financial education,
hopefully led by the Treasury and spread across the appropriate
level of education online?
My hon. Friend makes an important point about financial
education. I am pleased to see it is now part of the curriculum.
She is also right that a cohort of people who did not have
financial education are absolutely at the forefront of using this
form of credit. Half of all online shoppers aged 24 to 35 have
used buy now, pay later. What is challenging is how often they
are using it.
If people think that this is about a one-off purchase of a pair
of shoes, a dress for a special occasion, or Christmas presents,
looking at the one in 20 consumers who use it more than once a
week should make us worry about what it is about their finances
that means they need to spread payments because they cannot
afford to make a payment in a week. Some 35% of consumers aged 18
to 35 report using buy now, pay later more than once a week.
Buy now, pay later is a game-changer in how debt is being
created, generated, and maintained in our economy, but it is
going under the radar. Little wonder that two-thirds of merchants
are using this form of credit. It is now in over 20,000 major
brands in the UK including Marks & Spencer, Pennies,
Halfords, Asos, PrettyLittleThing, and I SAW IT FIRST.
Klarna was valued at £46 billion as a business in the last
investment round—I believe that is more than several of our
public services—and claims to have 13 million customers in the
UK. That is across every single one of our constituencies, but
disproportionately in the poorer constituencies where people are
struggling, and people are being targeted.
Citizens Advice reports that 41% of buy now, pay later users have
struggled to make a repayment, one in 10 have been chased by debt
collectors, rising to one in eight for young people and 25% have
fallen behind on another household bill in order to pay a buy
now, pay later bill. It does not take a rocket scientist to work
out that if there are debt collection agencies at the door, a
person is probably going to pay them before their council tax,
but we know the consequences that can have.
Time and time again, studies show that people do not realise what
they are signing up for. Forty per cent. say that they used it
without realising; 42% did not realise what they were signing up
for; 26% regretted it. One in four people regretted using buy
now, pay later because of the problems it created. As a
consequence, many are generating late repayment fees.
The Financial Conduct Authority agrees. In January, the Woolard
review called for the industry to be regulated as a matter of
urgency. That regulation is critical. One of the things that most
consumers do not realise is that, unlike any other form of
credit, including a payday loan, there is no regulation of the
buy now, pay later companies. In layman’s terms, if someone gets
into difficulty, they can only appeal to the companies themselves
to treat them fairly—and good luck with that. They cannot appeal
to the Financial Ombudsman Service as can be done with a payday
loan or a credit card.
There are many particular problems that need to be sorted out by
regulation. First, there is conflict of interest. Many of these
companies will tell you that they do credit checks. After all,
they say, they do not want to lend to people who cannot afford to
repay them. However, their definition of repayment is open to
interpretation, just as it is for payday lenders. One of the
things that worries me when I talk to the companies, which I have
done substantially, is that they will let someone miss a payment,
make a payment, and then continue to lend to them. They will let
someone express behaviour showing that they have a problem with
debt, and then carry on lending to them. As the companies rely on
merchant fees, it is not about the consumer for them. It is all
about the retailer, all about what they can get out of the
retailer, and the retailer wants that 20% to 30% more in
interest.
It is also about overspending. As I have said, there is 40% more
spending—of course that means that consumers will spend more than
they can afford. However, it also means that they can get
multiple buy now, pay later loans, just as we saw with payday
lenders—people going from company to company. Many people are not
just going to Klarna, but also to Laybuy, Clearpay, and the buy
now, pay later schemes that retailers have themselves. It is
meaningless to suggest that they are doing soft credit checks,
because they would not know who else had lent to an individual.
They would not know if that person had £500 worth of debt with
Klarna as well as £50 debt with Laybuy to inform whether they
should be able to take out another £200 of debt with
Clearpay.
Crucially, the fact that they are not required to report means
that there is no clear assessment for affordability; they decide
what a person can pay, rather than applying consistent
affordability criteria. That is a particular concern of mine as
we have seen this industry evolve so quickly over the past year,
and we have seen banks start to offer buy now, pay later. The
very people who manage our money are deciding how much of it we
can pay out and how much they can then charge fees on. It could
be argued that that is like an overdraft, but at least with an
overdraft we know that it is one, and consumers can be aware of
that. I would wager that people are much more aware of the risks
of an overdraft than they are of buy now, pay later.
Little wonder that there was a call earlier this year for urgent
regulation. That is why today I am asking the Minister what he is
going to do, because we have not yet had that regulation. It is
welcome that the consultation on what that regulation should be
has been published, but it was only published this month. We have
had eight or nine months now of those companies knowing that
regulation is coming, but with no clarity as to what that
regulation might be, or, crucially, when it might be enacted.
Little wonder that many consumer groups are very worried.
A Which? investigation in October found that of 111 major
retailers of fashion, baby and child and homewares, 62 offered at
least one buy, now lay later scheme, and the majority did not
provide any information about late fees. This afternoon I was
looking at various websites to see what information these
companies provide about the risks of the debt that people could
get into—the sort of information that we would expect as standard
from regulated companies. Very few provide that information.
We are still seeing the influx of advertising from these
companies—we cannot avoid it—pressing and pushing buy now, pay
later. Now it is linked to Black Friday which is
a relatively recent concept in the UK, but we are very keen on it
and account for 10% of all global Black
Friday searches. We are a nation who want to know whether we
are going to get a good deal and when it will happen. It is a
toxic mix, and one that we must address urgently.
It is right to consult on what the regulations should be, and I
hope the Minister will confirm that it is crucial to regulate
these companies as we regulate others. First, it is a form of
credit, so why should these firms not have the special
affordability rules that we ask of other companies? Secondly, if
we start picking off various types of credit and offering them
different types of regulation, we will quickly undo the
regulation that we have and see a race to the bottom, rather than
the standards that we all want for our constituents. He must also
recognise that the length of time that it has taken to get to
regulation has offered these companies an open goal, and it is
one that they have taken through the evolution of offering
immediate credit cards themselves direct to consumers to make
purchases—Amazon may say that it does not accept Klarna, but
people can use the Klarna app to buy from Amazon—and in the types
of products that can be bought using buy now, pay later. Betting
sites now offer buy now, pay later options. Food sites offer buy
now, pay later. Zilch can be used to buy a Domino’s pizza.
Think about that for a moment. Spreading the cost of a pizza over
months tells us something about the cost of living crisis and how
desperate people must be if they have to spread payments for a
pizza. This is not about buying fancy tellies any more; we are
back in the territory that we got into with payday lending, where
people use this form of credit to make ends meet because they
have got too much month at the end of their money.
The Minister will say that a consultation is ongoing, but it
closes after Christmas, so it is too late for Christmas this
year. In this environment, it would be helpful to hear that he
recognises the risk of Christmas. We know that one pound in every
four spent last Christmas was on buy now, pay later, and it will
be a lot more this year, so the risk of people getting into the
difficulties that the CAB and Which? outlined so well is even
higher. What will he do to warn people that such credit is
unregulated, so they do not have the consumer protection that
they might expect from other forms of credit? What is he doing to
hold to account those retailers telling us to go out, spend money
and treat our dearest and loved ones while creating websites on
which it is practically impossible not to get into using buy now,
pay later as the default option? What is he doing to ensure that
advertising is clear about the risks of the debt that people
could get into? When people look at the JD Sports site, which has
six different options for buy now, pay later, they need to
understand that all those options come with a higher risk than
other forms of credit because they are not regulated.
The Minister will say that the Government want to make good
legislation, and I agree, but he must take responsibility for the
length of time it is taking to regulate these companies, because
they have evolved and are exploiting people at the same speed at
which the payday lending industry moved to exploit people. The
problem with leaving these legal loan sharks to prey on our
communities is that we will all pay the cost at a later date. We
will all pay the cost when Government is slow and FinTech is
quick, yet that is the situation that we are in.
Will the Minister join me in calling on responsible retailers to
rejig their websites so that buy now, pay later is not the
default option but one that comes with a severe financial health
warning? Will he join me in asking major transport agencies not
to take these companies’ adverts until their costs are clear and
they admit that when they say, “No late repayment fees; no
charges,” that will not necessarily be true? Will he set out a
clear timetable for when he expects that the regulations will
come in and these companies will have to abide by common rules on
affordability and credit checking and treat our constituents
fairly?
I am really worried about this Christmas and how many people will
get into debt trying to do the completely understandable thing of
not being the Grinch. However, I am even more worried about the
message that we are sending. Just as Wonga came along and then
came Klarna, so another FinTech will come in the future. Every
single time we pause—every single time we as a nation say, “Well,
there might be unintended consequences if we don’t act”—we are
offering up our indebted constituents as guinea pigs for these
industries, and I know that is not what the Minister wants to do.
We have to be as quick as them, if not quicker, in recognising
the risk and stamping down on it.
I hope the Minister understands where I am coming from and why I
believe it is so important that Parliament sends the message
that Black Friday should be
a time when we are all very aware of our finances as well as the
deals that we are offered. We should be warning everybody about
buy now, pay later. I hope the Minister will agree that we have
to get much quicker at dealing with these risks, for the benefit
of all our constituents.
15:00:00
(Blackpool North and
Cleveleys) (Con)
It is a pleasure to serve under your chairmanship, Mr Robertson.
I congratulate the hon. Member for Walthamstow () on securing the debate, and
I congratulate Pip on taking the sensible decision to fall asleep
during his mother’s speech. He had a nice long sleep, as we can
all observe, which was perhaps a sensible decision by him. None
the less, we heard a powerful contribution from the hon. Lady,
most of which I strongly agree with. She clearly set out for us
some of the challenges that we now face.
I of course welcome the fact that the Government are looking to
regulate the buy now, pay later sector through the Financial
Conduct Authority. I am pleased to see so many buy now, pay later
companies falling over themselves, begging to be
regulated—“Regulate us, please!”—but they might not be quite so
happy when we get to see the detail. That will be the test of the
buy now, pay later sector: not its good intentions now, but what
it makes of the regulations at the end of the process.
I am concerned that the consultation fails to capture the true
nature of the consumer detriment, focusing only on the absolute
value of the goods but failing to capture how the market is
changing with this type of credit. That is strange, given the
wider policy environment. It was the Woolard review that first
took us down the path of regulating buy now, pay later, but it
had much more to say about improving access to lower-cost,
short-term credit for the more financially vulnerable. Both
issues need addressing in parallel, not separately, and I see no
evidence—I might be wrong—that the Government are adequately
progressing the wider agenda of the Woolard review on improving
access to low-cost, short-term credit.
I know that some people out there believe that the BNPL type of
product should be banished out of existence and is a fundamental
evil that drives demand for fast fashion. It is a very easy
target to strike. However, I represent a relatively deprived part
of the country and believe that my constituents should not be
denied access to the short-term, low-cost credit that more
affluent constituents take for granted. That should not be one
more example of the poverty premium that people face in their
daily lives. At the moment, the least well-off are
disproportionately penalised by the poverty premium, which sees
them subjected to higher insurance premiums and offered a much
smaller range of affordable credit products, if any at all exist
for their particular financial circumstances.
That is my first reservation about the consultation: it views the
consumer detriment as relatively small because of the low value
of the goods overall. We know that, on average, low-income
families have only £95 in savings, so even a single late payment
fee can have a devastating impact on a household’s financial
circumstances. We need to view these financial transactions in
the same way as we see credit cards, loans or mortgages. The last
time I had to remortgage, a few years ago, it was a six-hour
epic, as every single line of my expenditure was gone through in
great detail and I had to justify virtually everything that I
spent.
It is the percentage of someone’s disposable income, not the
overall amount, that matters when making such decisions, and
assessing affordability must be based on maximum transparency
between the buy now, pay later provider and the customer, but
also between providers. As the hon. Lady said, people cannot rack
up multiple debts with Klarna, Laybuy, Clearpay and all the other
new companies that are coming on the market. We need to move the
focus to the behaviour of the borrower over the lifetime of their
financial activities, looking at all their borrowing rather than
having just a single test for their credit risk or a single
affordability assessment in isolation. It cannot just be a credit
check that, if they fail, makes their ability to obtain credit in
the future that bit harder, because that is the opposite of
putting them on a pathway to more affordable credit. People might
be able to afford a loan at a particular point in time but then
be hit by a family bereavement that changes their financial
situation. Allowing lenders to see a wider picture of spending
habits requires much speedier progress on open banking than we
have seen so far.
I am also interested in examining the future of the sector. The
consultation on regulation cannot just meet the market as we see
it at the moment; it must meet the market that we will see in
years to come. Consider the issue of rent to own, on which both I
and the hon. Member for Walthamstow attended debates well before
2015. That sector went on a long journey, from the relatively
innocuous ubiquity of Radio Rentals, which many of our parents
used to buy their first TVs back in the late ’70s, to the more
problematic practices of BrightHouse and PerfectHome in the 21st
century. We know where that journey ended. I still walk past the
boarded-up BrightHouse shop on Abingdon Street in the centre of
Blackpool, which I named the most dangerous place in Blackpool
because it was sucking people in and trapping them in long loans
of high-cost credit.
We are already hearing that buy now, pay later is being used not
just for pizza but for the weekly food shop. That should really
give us pause for thought. Higher-value goods are now being
bought through buy now, pay later. It is not just fashion, which
we automatically link with Klarna and the advertising that we
see. I read in the paper just this week about a new market
entrant, humm, from Australia, that specialises in much larger
consumer goods—something that makes me go “humm” when I wonder
whether that is desirable.
We must also think more about the retailers, as the hon. Member
for Walthamstow said. They are as much the beneficiaries of this
market as are the buy now, pay later providers themselves. The
whole business model works only if it increases sales for the
retailers; otherwise, why would they bother paying the buy now,
pay later provider a percentage fee? That fee is what justifies
this form of market.
If that becomes our default payment mechanism in a cashless
society—which I am afraid that, as we debate here, we seem to be
sleepwalking into—we may need to look again at how we monitor the
internet shopping experience and the customer journey through a
website. Will regulations that were framed around the idea of
purchasing clothing work for goods that could cost thousands—much
larger consumer goods and consumer electronics? Where do the
retailers sit in all of this? There is a real commercial dynamic
at work here.
I was speaking to ASOS just last night, at a reception in the
Churchill Room. They said that they had worked with Alice Tapper
of GoFundMe, a noted campaigner whom I am sure the hon. Member
for Walthamstow has spoken with at length. She has worked with
ASOS to redesign its website to ensure that it is a
friction-filled—not frictionless—journey for the consumer, so
that there are multiple occasions when consumers are asked to
pause and consider what they are about to purchase, and so that
buy now, pay later is not the default, pre-ticked option on the
checkout form. Those are all very simple measures, but they are
not measures that the Treasury can effect. They come under the
Advertising Standards Authority and other types of regulation.
The consultation on regulation will not solve everything; there
are other agencies that have to take other steps.
None the less, there are better solutions out there, and the
Government are committed to them—not least no-interest loans. I
am at risk of reading out a paragraph from my previous speech,
when the Minister was here and I did not get an answer, so let me
have another go, if he is listening. I am obsessed with reforming
local welfare assistance schemes so that people can access the
white goods that they need. The Government have a very good idea:
no-interest loans. Providing those should not be rocket science.
The original idea came from Australia—the same place from where
humm is now arriving on our shores, and where Good Shepherd
Australia has been operating micro-finance for many years.
Surely, to introduce them here must be cut-and-paste. Indeed,
some of their regulations on buy now, pay later are a model of
what we are planning to do here. Rather than building a programme
from scratch, why not try to move faster by looking at what works
in other jurisdictions? This matters, because the cost of
replacing white goods is terrible for so many families, who fall
into debt as a consequence. We need only listen to the
Liverpool-based End Furniture Poverty campaign and look at the
pilot schemes that Fair4All Finance is launching to tackle the
concept of appliance poverty.
The hon. Member for Walthamstow also mentioned FinTech, perhaps
in the sense that it is almost a risk that you never know what it
will come up with next. Equally, I think that FinTech is actually
part of the potential solution. There are companies out there and
emerging—Auden Financial is one that I happen to know quite
well—that are looking to use FinTech to provide the low-cost,
short-term, ethical credit that I think has to be the end goal.
We all talk in this place about FinTech. We all swoon, almost, at
the wonderful thought of what a fantastic business it is. I am
not sure that we as politicians always understand it terribly
well, but we need to keep asking how we can work with that sector
so that it does good and not bad.
There will always be disruptors, and I want to disrupt the
business of high-cost, short-term credit; that is what I want to
disrupt. There is a gap in the market for a new provider to come
along and do things differently. No one should be denied the
opportunity to own things. Everyone should have the ability to
choose how they spend their money and to choose how they access a
form of credit that is regarded as affordable to them and does
not place them in greater difficulty. At the moment we are not in
that position, but there are multiple ideas out there.
Restricting access to buy now, pay later, properly regulating it,
and treating it like any other form of credit and not least in a
way comparable to how we treat consumer detriment from credit
cards, has to be one step along the path. There is a much wider
agenda that the Treasury needs to embark on to embrace the whole
Woolard review, not just one small paragraph.
I commend what the Minister is doing. Like the hon. Member for
Walthamstow, I know that he is on the side of the angels. But it
is the job of those on the Back Benches to say, “Go further; go
faster. Do it yesterday.”
15:12:00
(Belfast South) (SDLP)
It is a pleasure to serve with you in the Chair, Mr Robertson. I
thank the hon. Member for Walthamstow () very much for introducing
the debate, and I congratulate her on having not only a genuinely
good track record of action on consumer protection, but much
better behaved infants than I have ever had, which is not to be
sniffed at.
I associate myself with many of the remarks and proposals that
the hon. Member and others have made, including about
understanding that individuals and families are ready for a
meaningful Christmas, and acknowledging that many are able to
make, and are facilitated in making, difficult choices and
balancing things this year and every year. However, we also have
to acknowledge that Black Friday and the
associated financing is not a generous offer and an attempt by
retailers and financiers to make Christmas dreams come true. It
is, in many ways, exploitation of those natural human instincts
to try to provide for family. Black Friday is
no longer just one day in November; it is a month-long—and often
longer—bombardment of advertisements, deals and “ways to pay”
that go far beyond traditional methods.
Research published today by Which? indicates that some 99%
of Black Friday deals that
it assessed were in fact available cheaper elsewhere in the
calendar year. At the heart of this is driving people to make
more purchases. We could spend this debate talking about the
negative impacts of Black Friday alone on
people, on the planet and on smaller retailers, which perhaps do
not have the same marketing infrastructure as larger ones, but
probably the most acute impact, as the hon. Member for
Walthamstow outlined, is the results and the risks of predatory
lending.
Citizens Advice has likened buy now, pay later to quicksand—easy
to slip into and very, very difficult to get out of. As I said,
at the heart of the concept is encouraging people to spend money
that they do not have by putting the hard landing of any purchase
on the long finger. The hon. Member for Walthamstow is correct to
highlight the habit-forming tactics that mainstream this means of
purchase and steepen the slippery slope by which many people
slide into debt. She highlights the very interesting statistic
that it increases sales by up to 30%. Evidence bears out the
concerns that Members have expressed, with 75% of buy now, pay
later users being under the age of 36—this tactic is clearly
marketed particularly at Gen Z—and four out of 10 of them
struggling to repay. That matches what we already know about the
financial security of many in that demographic, who are already
in or at risk from the gig economy, with its inadequate and
unsustainable or unfixed incomes.
The services we are discussing are, in many cases, clearly
harmful to the individual consumer, but also to the planet.
Members outlined that the vast majority of buy now, pay later
purchases relate to clothing, which drives the acutely
unsustainable fast fashion market in which literally tonnes of
clothing, often produced in dubious labour conditions, quickly
ends up in landfill after a tiny number of wears—the product is
often designed to be worn a small number of times. There is a
wider impact. Fashion website Boohoo offers shoppers five
different ways to pay for a £30 dress, which again underlines
that this is not about facilitating a special Christmas purchase
or a big purchase, such as a TV, that a household needs; this is
about driving a pattern of spending that locks people into
unsustainable purchasing habits.
As one investor in a buy now, pay later start-up explained:
“It increases the basket size and it also reduces dropped
baskets”.
Some of that is marketing; it is what business does. It is the
logical extension and development of the economy we have.
However, as in many other areas of the market and the economy, we
have an obligation to try to protect people from technologies and
marketing techniques that are far beyond what any of us are used
to.
This is a big and emerging problem and, like a lot that relates
to technology and online, the market may be moving faster than
regulation can, but it is not an unsolvable problem. The hon.
Member for Walthamstow outlined many ways, alongside FCA
regulation, to intervene and slow this down, including
obligations on retailers to adequately display and explain the
background of the products they serve. For example, in Sweden,
the home of Klarna, it is already illegal to market buy now, pay
later ahead of other types of up-front payment.
It is welcome that the Government acknowledge this issue and that
regulation is required. It is important that we have forums such
as this one to correct the view that this is not a widespread
consumer problem, because it is. We know very well the depth of
the debt problem. After all, credit is debt—that is what it is.
As others have explained, people will always want to use credit,
but in many cases it will be for a long-term purchase that will
have benefits in life. In the vast majority of buy now, pay later
cases, that does not apply. I support the motion and all efforts
to regulate and protect.
(in the Chair)
We come to the Front-Bench spokespeople. I would like to leave
two or three minutes at the end for the mover of the motion to
wind up the debate.
15:19:00
(North Ayrshire and Arran)
(SNP)
I begin by paying tribute to the hon. Member for Walthamstow
() for bringing the debate and
for all her work in this area. As the Christmas shopping season
gets fully under way, it is right that we debate debt, how
consumers require protection in a fully regulated credit market,
and the responsibility of Government to ensure that that is the
case. The high cost of some credit options, especially buy now,
pay later deals, is already causing untold misery for millions of
consumers. So far this year, shoppers have racked up more than £4
billion of outstanding debt, averaging £538 for each user.
Research shows that 10% of shoppers plan to use buy now, pay
later options this Christmas. I am sure that option can be
helpful for some people, to spread the cost of significant
purchases, but it can also facilitate the building of
unsustainable debt.
In order to protect consumers, the sector needs to be properly
regulated. An exemption in the law as its stands means that these
payment plans are not treated in the same way as traditional
credit agreements, so they are not regulated by the Financial
Conduct Authority. Therefore, as the Woolard review found earlier
this year, many consumers do not see buy now, pay later options
as a form of credit, so they do not consider arrangements as
carefully as they might otherwise do. It is worth noting that the
sector was comparatively small, but the value of transactions
nearly quadrupled between January and December last year, to £2.7
billion. It is easy to understand why the Woolard review
concluded that there is an urgent need to regulate all these
products.
The Government’s consultation into the regulation of the buy now,
pay later market will close in January. It must result in robust
regulation of the sector, which must be brought into line with
the regulation of other areas of the credit market, with interest
at least no higher than that for pay-day loans, credit cards or
overdrafts. It should also require credit checks similar to those
for other credit products. It is appropriate to think about such
things as we approach Black Friday and Cyber
Monday, which is the commercial answer online to in-store
shopping.
Recent research by the consumer organisation Which? is very
worrying. It reveals that a strikingly high number of shoppers
feel rushed into making Black Friday purchases.
Many live to regret it, using credit or borrowing to make
purchases that they could otherwise not afford. That must be seen
against the background of the way that Black
Friday is marketed, using the threat of regret, with banners
such as “Hurry!”, “Don’t miss out!” and “Last chance!” plastered
around these so-called deals. Shoppers who buy on credit pay
extra for their purchases, regardless of how good the deal might
look, once the extra cost of credit is factored in, which can
build from month to month.
It is also worth noting that the seductive techniques used to
encourage shoppers to splurge on Black
Friday belie the fact that Black
Friday deals are not always the best of the year. In fact,
many products can be found cheaper in the months before and after
November. According to Which?, that is all hidden behind the
marketing used for Black Friday
As we approach Christmas and talk about debt, there are some who
say—and I have heard them—that people should live within their
means. It is easy for those who are relatively well off to
lecture those who do not have very much about living within their
means. It is completely understandable that people, despite being
financially pressured, still want to buy presents for their
children at Christmas—of course they do. If they do, the
Government have a duty to ensure that all consumers are buying in
a fully regulated credit market, with all the protection they
need, should they find themselves overwhelmed with debt. The
Government have a duty to ensure that all aspects of the credit
market are fully regulated and fit for purpose.
I need to say at this juncture that many families are not forced
into debt because of Christmas shopping, but because their
everyday household budgets are being squeezed more tightly every
single day. We must not assume that unsustainable debt is down to
non-essential purchases. Many households are falling into debt in
order to pay for essentials, such as the gas bill or groceries.
That applies not just to those who are unemployed but to that
shameful phenomenon: the working poor. Those are people who go
out to work every day to provide for their families but simply do
not earn enough to make ends meet and pay for essentials, having
been met with a cut of more than £1,000 a year in universal
credit.
We are sitting on a debt time bomb, and it is not due to
profligacy; it is because so many people have suffered an income
shock through no fault of their own. Sadly, for those people, the
idea of levelling up sounds very hollow as they face the
destructive misery of debt, which every day threatens to engulf
them. The cost of living is rising, and that is throwing many
people into hardship, including many people who were always able
to manage in the past. The UK household debt crisis is not going
away; it is actually getting worse.
The Government must therefore ensure that the buy now, pay later
market, which we have heard so much about today, including the
difficulties with it, is subject to the robust regulation that
consumers have a right to expect. That process must be expedited
so that next year, at the next Black Friday
anyone who turns to any kind of credit can do so with much more
protection and confidence than they are currently able to. Some
people have estimated that the sector may not be properly
regulated until as late as 2023. That prospect is deeply
concerning, so I hope that the Minister will today commit to
expediting regulation as soon as possible and as a matter of
priority, so that we can save yet more people from experiencing
the severe misery of debt without the protection that they should
be entitled to expect.
15:26:00
Mr (Wolverhampton South East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Robertson,
and I begin by endorsing the remarks you made at the beginning of
the debate. I attended the funeral mass this morning for , and you are absolutely right
that he is a colleague who will be greatly missed right across
the House.
I thank my hon. Friend the Member for Walthamstow () for securing this debate. I
also thank our youngest member, who has attended the debate and
been as good as gold throughout; we will see how we get on for
the next 20 minutes.
My hon. Friend has been a formidable campaigner for consumer
rights and against high debt charges, particularly for those on
modest incomes. We are focused this afternoon on the buy now, pay
later sector, which has grown hugely in recent years. The
Government consultation on the issue says that the use of that
payment mechanism tripled last year, and that during the pandemic
more than one in 10 consumers paid for goods in this way. We have
heard other numbers in the debate that suggest that the true
figure may be even higher. Whatever the exact figure is, I think
we can all agree that the sector is growing fast.
During the pandemic and the lockdowns, we saw an accelerated
trend towards online shopping, and indeed online everything else,
which helped to spur the growth of buy now, pay later products.
As for the overall financial impact of the pandemic, it is really
a tale of two Britains. For those in good work, who were still
being paid full pay, the impact was often the ability to save
more money. Right across the country, and across the rest of the
developed world, bank deposits increased markedly for that
reason. People were still earning, but much normal spending was
curtailed, so they had more money to save.
That is the story of one Britain, but there is another Britain in
which earnings were cut as work was lost, and where incomes
declined and debt grew. For many people in that group, their
costs increased because they were stuck at home with the heating
on, their food bills went up because children were off school,
and they could not earn what they had earned before. Those were
families who had never had much disposable income in the first
place, and who were often struggling with and juggling
significant amounts of debt. Many of those people fell between
different Government help schemes and were left under huge
financial pressure. It is really important to understand that
while overall savings grew, that was not true for everyone, and
for many people debt grew instead.
However buy now, pay later products are marketed, they are
another form of consumer debt, pure and simple. The explosive
growth in this type of debt in recent years, and the risks
identified in the report that Chris Woolard wrote last year, mean
that it is right that these products are properly regulated. That
is in the interests of consumers, who have a right to know
exactly how the products work and what the potential penalties
for non-payment will be. Otherwise, regulation will fall behind
innovation in the market and become hopelessly out of date.
The business model for buy now, pay later is a merchant fee for
each purchase. The growth model is that more goods will be sold
because payments can be spread over a period of time. Interest is
not normally charged on the staggered payments, but that is not
the end of the story, because the companies also raise revenue
through late payment fees or penalties when consumers fail to
meet payments. For some buy now, pay later providers, those late
payment fees and penalties are a significant proportion of their
overall revenue. We must remember that, in the end, this is a
debt like any other, which attracts penalties if it is not paid
in accordance with the agreed timescale.
Chris Woolard’s review concluded that the buy now, pay later
market
“poses potential harms to consumers and needs to be brought
within regulation to both protect consumers and ensure it is
sustainable.”
To their credit, the Government acted fast at first, taking an
initial power last March during proceedings on the Financial
Services Act 2021. Then, after a long period, Ministers issued
the consultation on detailed regulations only last month. That
consultation is still open and does not close until January. Why
was there a delay of seven months or so between the initial
legislation and the publication of the consultation? Why is the
tone of that consultation quite unenthusiastic about regulating,
seeking to minimise the scope of the regulation? It gives the
appearance that the Government have been dragged into this. This
is a fast-growing market. New accounts are being opened every
day, and there is no reason to delay. This delay will mean that
significant time has elapsed between the initial decision and the
Government’s approval of the Woolard report and introduction of
the regulations.
My hon. Friend the Member for Walthamstow has spoken about the
potential for the next few weeks to result in significantly more
consumer debt, with both Black Friday and
Christmas approaching. I endorse what she said: nobody here wants
to dampen anyone’s enthusiasm for a bargain—although I caution
people to check whether it really is a bargain—and of course, we
want everyone to enjoy the festive season. In my house, it is
pretty big business. We have lights on the inside, we have lights
on the outside and, whether I like it or not, we have an awful
lot of Michael Bublé. But it is no secret that the festive season
can be an expensive time for people and that, for some, December
spending can result in a January hangover. That makes this debate
both timely and important.
Innovations such as buy now, pay later were not envisaged when
the Consumer Credit Act 1974 was passed, and that is why this gap
must be filled. When it comes to updating the regulation system,
the Government need to act and get on with it. What might the new
regulations cover? The slightly reluctantly worded consultation
gave some clues, but there are obvious areas, and I want to name
a few. The first is information to the borrower. Does the
borrower understand that this is a debt, and that they may be
subject to penalty charges and increased costs if payments are
not kept up? As we have heard, that is often not made clear.
What is to stop consumers setting up multiple buy now, pay later
products with multiple companies? How will one know about the
other? Does the consumer’s bank know about the other products?
What if the consumer is already heavily indebted to their bank?
That featured in the Woolard review, which implied that about one
in 10 buy now, pay later account holders might already be quite
significantly indebted to their bank.
What should the rules be on advertising and promotion? As the
Minister knows, the weakness of the FCA’s financial promotion
rules has already been a factor in the case of London Capital
& Finance, which we debated in relation to other legislation
recently. How will the regulations ensure that advertisements and
promotions convey sufficient information about the nature of the
credit agreement being entered into and the risk of incurring
debt and penalties? Will consumers be told, for example, that
non-payment could result in their debt being transferred to a
debt collection agency? That is quite important, and might give
people pause for thought when they take out such a product. Also,
how do we treat consumers who get into difficulty? Right now,
there is a mix of late payment fees and the use of debt
collection agencies. Will the regulator codify that properly,
given the proportion of revenues that some companies are raising
from that activity?
Finally, returning to the timescale, can the Minister ensure that
once the consultation closes, there will be no further delays and
the FCA will be able to act as soon as possible, whatever the
outcomes of that consultation? Given that the Woolard review
reported near the beginning of this year, we certainly do not
want to roll all the way through next year with no regulation in
place. This is a very fast-growing new form of consumer debt.
Regulation has not kept up: it must do so, or else it will ossify
and become out of date. Time has already been lost this year, and
I will close by urging the Minister—I know he wants to help on
this issue—to get on with it, so that in relation to these
products, consumers have the protection and information that they
have a right to expect.
15:36:00
The Economic Secretary to the Treasury ()
It is a pleasure to serve under your chairmanship, Mr Robertson.
I associate myself with the remarks of a number of Members this
afternoon concerning the death of . He was a true blessing to this
Parliament and a great character whom we all loved, and he will
be sadly missed.
I have listened carefully to the various contributions this
afternoon. As ever, this has been a very well-informed debate
that I welcome very much. I pay particular tribute, as I have
done previously, to the hon. Member for Walthamstow () for securing a debate on
this important matter. I will be sure to give her some time to
have another go at me in the last few minutes of the debate. She
set the scene very well, explaining the context that we face in
the run-up to Christmas: the inducements to consumption and the
apparent savings for consumers; the evolution in new forms of
credit; the need for regulation, which I fully accept at the
outset; the risks around the use of buy now, pay later becoming
habit-forming; the behavioural shifts we are seeing in the
market; and the need to really think about the context of
borrowers’ behaviour as we bring forward this regulation. As
ever, we were treated to some sophisticated analysis of the wider
consumer credit challenges, and the issues with making more
affordable credit available, from my hon. Friend the Member for
Blackpool North and Cleveleys (). I will address those points
later.
It is important that we start this afternoon by understanding the
Government’s position: we recognise that there is a potential
risk to consumers from unregulated buy now, pay later products. I
listened very carefully to the criticisms of the timeline, and
over the next few minutes I will address the challenges we have
encountered and present some of the solutions that we think may
exist. It is extremely helpful for all parties to be represented
in this debate; given the level of engagement from players in the
market, there is a clear desire to address this significant area
of concern in Parliament. There has been a massive explosion in
this area, and it is important that we respond appropriately.
It is important to understand the nature of the risks. We should
acknowledge that the use of buy now, pay later is growing
rapidly: in fact, the number of transactions from the main
providers using buy now, pay later more than tripled in 2020.
That said, buy now, pay later is still estimated to have amounted
to only 2% to 3% of the consumer credit market last year, and a
recent study by the consultancy Bain & Company found that
about 5% of online transaction volumes involved the use of buy
now, pay later. I am very sensitive to the distribution of that
additional use and the people who are increasingly reliant on buy
now, pay later—that is something we must take account of—but it
makes up a smaller proportion of the market than is sometimes
believed. In addition, we have not seen substantial evidence of
the risks that some have predicted materialising.
I will set the scene of the current state of regulation, because
it certainly does not mean that the Government are turning a
blind eye. A degree of regulation already provides protections
for users of interest-free buy now, pay later products. The
Consumer Protection from Unfair Trading Regulations 2008 make it
a criminal offence for traders to give consumers misleading
information. Firms are required to provide consumers with the
information necessary to make informed decisions and not omit or
hide material information that the average consumer needs. The
FCA and the Competition and Markets Authority are designated
enforcement bodies for these regulations. The Consumer Rights Act
2015 requires that the contract terms of buy now, pay later
providers must be transparent and not contain unfair terms. When
promoting buy now, pay later products, firms must also comply
with the rules set out in the UK advertising codes, and offending
firms can be referred to trading standards and Ofcom.
Last year, the Advertising Standards Authority published formal
guidance about buy now, pay later, setting out its expectations
of both providers and retailers when they offer these services.
The ASA also banned harmful buy now, pay later adverts, stating
that future advertising must not irresponsibly encourage the use
of a product, particularly
“by linking it with lifting or boosting mood”.
That is something that the hon. Member for Walthamstow has
highlighted and campaigned on. Some buy now, pay later agreements
are also already subject to some aspects of the financial
promotions regime. The FCA uses its existing powers to protect
buy now, pay later users, for example by scrutinising marketing
materials of authorised firms and the way these products are
promoted. The FCA has wider consumer protection powers that it
can apply to unauthorised firms where it sees poor practice.
Effective Government oversight of financial services is not just
about imposing rules; it is also about engaging with industry. In
the case of the buy now, pay later sector, that is something we
have done extensively—as have Members here today. We have seen
that reflected in the actions of the largest firms, with many
voluntarily introducing credit-worthiness checks and making
information more transparent at checkout. However, I fully
concede that that is not universal, and not every firm has moved
in the right direction.
Looking ahead, the fact that we have seen some progress does not
mean that we are complacent. As Members have noted, the Woolard
review into the unsecured credit market, which was published in
February this year, identified a number of potential risks. They
include how buy now, pay later is promoted to consumers and
presented as a payment option. Consumers are sometimes left with
an absence of information about the product and the features of
the credit agreement, and there are no requirements to undertake
affordability and credit-worthiness checks. As has been pointed
out, that is particularly important when multiple transactions
are taken up with different buy now, pay later providers.
Following the publication of the Woolard review the Government
announced, with support from the Opposition —I am grateful for
their support—our intention to regulate these products. On 21
October, we published a consultation document that sets out the
proposed approach to regulation, and that consultation is open
until 6 January. Prior to the publication of the consultation, I
had a lot of engagement with my officials. One of them is sitting
here today, and I have spoken to a number of them this afternoon
and numerous times before that. It is through a desire to get
this right that we have taken time over it. There is no desire to
go slow. I recognise that there is an urgency to this, and we
have to move forward as quickly as we can. During the
consultation period, the Government are engaging with
representatives from consumer groups and industry—indeed, there
is a workshop going on this afternoon—to ensure that the final
approach to regulation strikes the right balance on consumer
protections. Debates such as this help to inform that
approach.
We want to expand the evidence base about the risk to consumers,
and Members from across the Chamber have made a lot of points
about that this afternoon. As I have said, the Government
recognise the potential risks, and that has been supported in
recent studies by consumer groups, such as Which?, Citizens
Advice and others. However, the Government’s view is that as an
interest-free product, buy now, pay later is inherently lower
risk than products that charge interest. Used properly, it can be
a way for consumers to manage their finances, as my hon. Friend
the Member for Blackpool North and Cleveleys mentioned, and to
spread the cost of purchases—particularly when managing periods
of higher household expenditure, such as Christmas, when Michael
Bublé CDs are being purchased in the household of the right hon.
Member for Wolverhampton South East (Mr McFadden). We should not
forget that interest-free buy now, pay later offers, specifically
around Black Friday can allow
consumers to take advantage of offers and discounts that they
might not otherwise be able to benefit from.
Looking ahead, and in the context of the ongoing consultation,
our overall objective is to ensure that buy now, pay later
products can continue to be offered in a way that allows
consumers to take advantage of the flexibility of the offer,
while ensuring that the potential risks are managed. That means
designing regulation that is proportionate to the level of risk
and takes into account the way that the products are used.
For example, the Government believe that is it reasonable that
buy now, pay later products use a bespoke approach to consumer
disclosures, as well as to the form that the credit agreement
must take. That is reflected in the proposals in the
consultation, which I would characterise as not reluctant, but
detailed, reflecting the fact that different issues come up with
the evolution in the market and in the provision of different
services. We cannot apply a single, one-size-fits-all approach. I
see that the hon. Member for Walthamstow is adjusting her face
mask, so I think she wants to intervene.
I thank the Minister for letting me intervene. He will understand
that I am a little troubled because when the Woolard review said
in February that there was an urgent need for regulation, we all
agreed that urgency, as well as regulation, was a critical part
of that conversation. Does he accept that in the absence of such
regulation, one thing that we now need to tell people —it is on
his list—is that they cannot go to the Financial Ombudsman
Service if they feel they have been mis-sold a product? At the
very least, in the intervening time before any regulation comes
forward, the Government have a duty to ask retailers and
companies to make that clear to people—a buyer beware warning.
Does he at least accept that the Government should be doing that
this Christmas?
I fully accept the point that the hon. Lady makes, in that at the
moment, those protections do not exist, and that is why we have
to regulate appropriately and proportionately.
I want to say a bit more about what I think we should be doing.
It is reasonable that buy now, pay later products use a bespoke
approach to consumer disclosures, as well as to the form the
credit agreement must take, and that is reflected in the
consultation proposals. However, we need to think about the way
that these products are used in the context of an online journey,
the warnings that are inherently there during that journey and
the fact that they are frequently used for much smaller sums than
the traditional credit agreements for which these rules were
originally developed.
When we think about how this facility is used, part of the
challenge is the way additional payment smoothing mechanisms can
inadvertently be sucked in. I do not want dental payment
plans—essentially, for expenditure that is smoothed over 12
months—to incur an obligation to do some form of affordability
check. Such issues make this more complex than it may have at
first seemed.
I am determined that we get this right, that we recognise the
distinct consumer risks that exist and that we bring forward
regulation that deals with them. The Government’s view is that
buy now, buy later information should not be long and detailed so
that it becomes just another long set of terms and conditions,
because frankly there is a significant risk that people would
just make a cursory observation of such a list and tick the box.
Instead, the information should be presented in a form that
allows consumers to engage meaningfully, and I hope the hon.
Member for Walthamstow would support that.
The Government also consider in the consultation whether the
financial promotions regime, which already applies to a broad
range of financial products, should be amended to ensure that all
buy now, pay later promotions fall into that regime, further
strengthening consumer protection. That would mean that all
promotions made by merchants, such as a retailer, would have to
be approved by an FCA-authorised firm. It is also important that
consumers are lent to affordably. That is why the Government
anticipate that the proportionate regulation of buy now, pay
later would include the application of the FCA’s current rules on
credit worthiness.
The Government recognise that these products are lower risk than
other interest-bearing agreements and can help consumers to
manage their finances. A study by Bain suggests that in 2020
consumers using buy now, pay later instead of credit cards in the
UK saved £103 million in interest. I say that not to commend it
over credit cards, but to recognise the segmentation of the
credit market and the different behaviours and options that exist
out there. That is why we believe it is right that regulation is
balanced and proportionate, ensuring that customers are given the
appropriate protections, without unduly limiting the availability
and cost of useful financial products.
As hon. Members have mentioned, there is already precedent for
imposing different regulatory requirements on different credit
products, depending on the risk they pose. The Government and the
FCA have previously implemented bespoke regulation for
higher-risk products, such as the price cap rules for payday
lenders and rent to own. Obviously, it would be difficult to
apply that symmetrically in this context, but I sincerely welcome
the hon. Lady’s comments later. Likewise, a more proportionate
approach is right for buy now, pay later products, which we
assess to be of a lower risk.
As new products enter the market, it is critical that the
Government carefully consider not only how credit products are
regulated, but where the boundaries of regulation should be. I
note the concern that buy now, pay later may increasingly be used
as a more mainstream form of credit, as has been mentioned this
afternoon, and that even some banks are beginning to offer
it.
Many different types of financial arrangement already make use of
the same exemption, as I mentioned earlier, which currently
allows interest-free buy now, pay later to operate outside
consumer credit regulation—and has done so for decades. That
includes arrangements used over many years by UK retailers to
support the purchase of higher value items such as home
furnishings and white goods, but also those arrangements which
allow monthly payments for memberships to sports clubs, dental
plans, other associations and certain invoicing arrangements.
In regulating buy now, pay later, we need to think carefully
about all the arrangements that these changes could affect and
avoid bringing activities into regulation which do not present
the same risks to consumers. What is in play here is the
cumulative application of the buy now, pay later product to a
vulnerable group of consumers, and we need to make sure that that
is where we focus the outcome. The Government must also ensure
that their approach is future proof and cannot be gamed by firms
operating on the margins of regulation. That is why we are
engaging with consumer groups in detail to ensure that we get
this right and capture the emerging products that are beginning
to form.
I will give the hon. Lady several minutes to come back, but I
want to mention personal debt more broadly, because it is a
critical topic that comes into this discussion. I think everyone
here has a desire to tackle problem debt and, as this afternoon
has shown, we share an understanding of the complexity of the
issue.
We need comprehensive solutions, which is why we are maintaining
record levels of funding for free debt advice in England. The
Money and Pensions Service this year has a budget of £96.4
million. We have launched the breathing space scheme, which gives
a 60-day freedom from fees and payment requests. We are also
expanding the availability of affordable credit, providing £96
million of dormant assets funding to Fair4All Finance.
My hon. Friend the Member for Blackpool North and Cleveleys
talked about the Australian experience and the opportunity to cut
and paste no-interest loan schemes. We have moved ahead with
that, and I anticipate that it will move more quickly now.
However, I want to be absolutely clear that it works in the UK
context and can be scaled up quickly. I would rather it was on
solid foundations, but I feel his frustration in my heart
too.
I will sum up by reiterating that the Government’s view is that
interest-free buy now, pay later has a legitimate role to play in
the market, but its rapid growth throws up challenges. I think
that consumers recognise that; they find it useful and easy to
use. However, we are committed to getting regulation right and
protecting consumers. The asymmetry of protections mentioned here
needs to be addressed, but we want to do that without limiting
the availability and cost of genuinely useful financial
products.
We understand that there are concerns, which I have heard this
afternoon, about the speed of the regulation. I will do this as
quickly as I can, with my officials. We will report back to the
House as quickly as possible, but I would welcome colleagues’
continued engagement in the weeks ahead. I recognise the risks
that exist in the run-up to Christmas, and I acknowledge the
legitimate warnings that the hon. Member for Walthamstow has
raised.
15:56:00
We have had a very important debate today. I pay tribute to my
hon. Friends the Members for Hampstead and Kilburn () and for Hornsey and Wood
Green (), the hon. Members for
Blackpool North and Cleveleys () and for Belfast South (), the SNP spokesperson—the
hon. Member for North Ayrshire and Arran ()—my right hon. Friend the
Member for Wolverhampton South East (Mr McFadden), speaking from
my own Front Bench, and the Minister, for their contributions. I
also acknowledge the work of my hon. Friend the Member for
Makerfield (), who has been a fantastic
champion on debt issues, but sadly could not be with us this
afternoon.
I also pay tribute to the work of Alice Tapper from Go Fund
Yourself, who has been a fantastic campaigner in raising concerns
on this issue, as well as to Damon Gibbons from the Centre for
Responsible Credit, , of course—where would we be
without Money Saving Expert?—Citizens Advice, Which?, and Step
Change, all of whom have tried to sound the alarm about buy now,
pay later, in particular.
Today, I want to give the Minister probably the best Christmas
present of all, which is oddly enough not a subscription to
Michael Bublé on Spotify, but the opportunity to prove me wrong.
I want to be wrong about this industry. I want to see the
parallels with the same problems that we had with the payday
lending industry and be mistaken about this.
However, my concern is that Government are slow and FinTech is
fast. Everything the Minister has said today has raised that
concern for me. He recognises, rightly, that we need to regulate
this industry, yet our ability to do so is hampered by the “what
ifs”, which these companies do not recognise and, indeed, thrive
in. They are predatory. They are preying on our constituents and
evolving at a rate of knots. I am not surprised that they
suddenly say that they are in favour of regulation, in the same
way that turkeys would say that Christmas is overrated—if we are
looking for our festive analogies.
I urge the Minister not to falter. We must move as quick as we
can, if not quicker. I agree very much with the hon. Member for
Blackpool North and Cleveleys; the role of Back Benchers is to
say “Go faster; do it yesterday”. I also asked the Minister what
we would do in the intervening period, because we have predators,
such as Klarna, Laybuy or Clearpay in our communities. When
Clearpay wrote to me to boast that it had 4,000 customers in my
constituency, I felt physically sick, because for how many of
those people is this actually a solution, and how many is it
drawing into debt?
The Minister says that he recognises that we need to regulate and
that the lack of the financial ombudsman is a real challenge for
consumers, who genuinely would not know that they are not
protected when they use buy now, pay later. The question of
affordability is not about the product so much as the person.
That is what concerns me when we start talking about different
ideas of affordability for different products; it is still the
same constituent who will end up in our surgeries, about to lose
their home because they cannot pay their rent, not able to feed
their kids, worrying about their debts, not able to sleep at
night.
Regulation is always complicated, but there is a simple truth at
the heart of this: the speed at which this industry will evolve
and prey on our constituents is disproportionately linked to the
slow pace of change in our financial regulation industry. That
was the lesson of Wonga. This Christmas, we must learn the lesson
of these companies.
While we wait for that regulation, I again repeat the call to the
Minister. Use the Government education channels. Use the
publicity channels. Warn people that this is not regulated. At
least tell them, “Buyer beware”—that they do not have the same
protection that they might with other forms of credit this
Christmas—not just to check the details of those Black Friday deals
carefully, but to check the kind of credit they are using. It is
so easy on websites now to slip into buy now, pay later.
I promise the Minister that, this time next year, if he can prove
me wrong, he will have the best Christmas ever, but I fear I may
yet again be the Cassandra of the credit industry. That is not a
position I want to be in, because all our constituents deserve
better: not the Grinch, not the Scrooge, but a 2022 where they
can look their family in the eye, knowing how they will pay for
the food on their table and the roof above their head. That is
what good consumer credit is about.
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