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Stop the Klarnage – Rosie Cooper MP Joins Cross Party Coalition of 70 MPs Demanding Action on the Buy Now Pay Later industry

Immediate release: Thursday 14^th January

As surveys show increased levels of spending using Buy Now Pay Later products including Klarna and Clearpay during lockdown, West Lancashire MP Rosie Cooper, is joining over 70 MPs from across parliament and Martin Lewis of Money Saving Expert to call on the Government to protect consumers and regulate the Buy Now Pay Later (BNPL) industry.

On Wednesday, MPs debated New Clause 7 to the Financial Services bill which requires the regulation of the Buy Now Pay Later industry, a form of credit that has boomed during lockdown. Recent research from Comparethemarket.com shows BNPL schemes are being used 35% more often now than before the pandemic. 27% of users state this was because they could not afford to make the purchase outright.

BNPL companies allow consumers to spread payments over several weeks and have been growing in popularity during the pandemic as a way to manage the cost of buying online. Currently these companies don’t have to abide by Financial Conduct Authority rules due to a regulatory loophole because they don’t charge interest – yet there is growing evidence of the harm their practices are causing to consumers who are getting into debt committing to higher spending overall as a result of using these companies. This is not accidental – these companies market their services to retailers on the basis of the increase in overall spending by consumers through being encouraged to spread payments.

Speaking about the issue Rosie Cooper MP said: “With one in four shoppers using BNPL companies in the run up to Christmas, its vital we act before this becomes another Wonga style scandal. These companies make it easier to overspend online because the costs appear lower as they are spread out- yet with furloughing and redundancies growing what seems affordable in one month may not be in the next.

“Right now, consumers can’t even complain to the Financial Services Ombudsman about these companies as they aren’t covered by credit laws. That’s why I’m joining MPs from every party calling for the Financial Conduct Authority to step in before it’s too late and regulate these firms to protect consumers from racking up unaffordable debt."

These companies also use social media influencers to promote their products and encourage followers to spend more. The Advertising Standards Authority recently upheld a complaint by Stella Creasy MP and this campaign has already won the support of Martin Lewis from MoneySavingExpert.com.

Speaking about the campaign Martin Lewis, founder of MoneySavingExpert.com, said: “Buy now, pay later (BNPL) shouldn’t be sold as a lifestyle choice, something cool, or a new high-tech way to pay. It should be seen for what it is – a debt. The ASA is right to rule on the back of Stella Creasy’s complaint that ‘mood-boosting’ advertising for a credit product, often targeted at younger adults, is wholly inappropriate.”

The Financial Services Bill returned to parliament on the 13th January 2021 when all MPs had the chance to vote on this proposal. The amendment has also been signed by over 70 MPs from across all political parties. Rosie Cooper MP voted in favour along with 262 other MPs for the amendment to be implemented to the Financial Services Bill, however, the amendments were not approved by the rest of the house.

Rosie Cooper MP said: “I am disappointed that my colleagues chose to vote against these important amendments to the bill. Changes need to be made to ensure that BNPL companies can be held to account. I will continue to follow this issue closely and press for regulations to be put in place”

1. Comparethemarket.com research released in November 2020 shows As many as 35% of adults says they’ve relied more heavily on BNPL since the Covid pandemic struck, with millions turning to online shopping in the wake of intermittent lockdown measures. More than a quarter (27%) of those who’ve taken advantage of the delayed payment in the past year couldn’t afford the purchase at the time, while 23% say BNPL suits them better than other forms of debt.Young people aged 18-24 have the greatest reliance, with 54% claiming to have used BNPL more since lockdown – with almost a fifth of these (18%) missing a payment in the last year. https://www.comparethemarket.com/news-and-views/more-shoppers-use-buy-now-pay-later/
2. Stella Creasy MP made a complaint in August 2020 to the Advertising Standards Authority regarding a number of adverts by Klarna which involved social media influencers which encouraged followers to use Klarna to buy products to improve their mood during the coronavirus lockdowns. On 21^st December 2021 the Advertising Standard Authority upheld the complaint: https://www.asa.org.uk/general/media.html
3. A cross party group of MPs has tabled an amendment to the Financial Services Bill requiring the Government to introduce legislation to ensure that the Buy Now Pay Later industry is regulated by the Financial Conduct Authority. This will be debates on Wednesday 13th January 20201. Currently these companies are exempted by article 60F of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 which covers interest-free loans, repayable in no more than 12 instalments, within no more than 12 months, used for the financing of specific goods and services.
4. Research by credit broker platform Money.co.uk shows buy now pay later (BNPL) schemes are tempting shoppers into taking on unsustainable debt. a fifth of UK shoppers admit to spending more than what they can afford and admitting BNPL was an opportunity to purchase now and “worry about it later.” The average debt to BNPL platforms is £176, and takes eight months to repay. (https://fashionunited.uk/news/retail.../2020090350718)
5. 'Which' has also recently published research into BNPL which showed in a survey of 2,000 members of the general public, 24% of BNPL users spent more than they planned to because BNPL was available at the checkout. (https://www.which.co.uk/news/2020/12...mpulse-buying/
6. Klarna reported that in 2019 it had signed a partnership with a new merchant every eight minutes in the UK. (https://www.klarna.com/international...nutes-in-2019/)
7. The Financial Conduct Authority is currently conducting a review into the Buy Now Pay Later industry following concerns raised about this industry which will report in 2021. https://www.fca.org.uk/news/press-re...ket-regulation
8. New findings from Credit Karma, a credit reporting firm, showed that one in four shoppers used these schemes in the run up to the holidays. https://www.thesun.co.uk/money/13680058/debt-warning-buy-now-pay-later-christmas/