Millions of UK Households Turn to Deferred Spending Amid Cost of Living Pressures
Across the United Kingdom, millions of households are increasingly opting to defer their spending as a strategy to manage the escalating cost of living. Whether through traditional credit cards or modern instalment plans, spreading the cost of purchases has become a fundamental feature of the British high street. Recent estimates indicate that a staggering 30 million people have engaged with Buy Now Pay Later giants such as Klarna and Clearpay.
Major Regulatory Shift Brings BNPL Under City Watchdog Supervision
A significant regulatory transformation is now underway, as these firms are brought under the strict supervision of City watchdogs. Financial experts have praised the intervention by the Financial Conduct Authority as a crucial move to safeguard individuals at risk of falling into debt. The sector has experienced explosive growth, with shoppers utilizing deferred payments for a wide array of purchases, from designer clothing to Friday night takeaways.
Under these sweeping reforms, Buy Now Pay Later providers must conduct rigorous affordability checks and offer support to those struggling with repayments. Consumers will also gain the legal right to lodge complaints with the Financial Ombudsman Service if they are treated unfairly. This regulatory action follows a period of rapid expansion, during which the market surged from a mere £0.06 billion in 2017 to over £13 billion last year.
How the New Rules Will Impact Consumers
The industry must now comply with the FCA's Consumer Duty rules, ensuring all products are fit for purpose and deliver fair value. Borrowers will benefit from several key protections:
- Clear information regarding payment due dates, repayment amounts, and consequences of missed instalments.
- Affordability assessments to confirm repayments are manageable.
- Support for those in financial difficulty, including referrals to free debt advice services.
- Access to complaints procedures and compensation through the ombudsman.
Lenders are required to obtain formal authorisation, with a temporary permissions window open between May 15 and July 1. Once the new regime commences, firms will have a six-month period to secure their full credentials. Sarah Pritchard, deputy chief executive at the FCA, emphasized the importance of balanced regulation.
"We want the Buy Now Pay Later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products," she stated. "But crucially, no one should be lent to if they're unable to repay, because that could worsen their financial situation. Now Parliament has given us the powers, we're putting in place proportionate protections for the 11 million people who use it."
Expert Warnings on Credit Score Implications
Riz Malik, director at Southend-on-Sea-based R3 Wealth, cautioned that casual use of Buy Now Pay Later products can lead to long-term financial complications. "Excessive use of BNPL can have an impact on your credit score, which could cause complications if applying for other forms of finance such as a mortgage," he explained.
Malik noted observing credit files cluttered with Buy Now Pay Later entries for minimal amounts, warning that just because one can pay for a pizza in instalments does not mean it is advisable. Scott Taylor-Barr, of Barnsdale Financial Management in Leicester, concurred that the stricter regulatory regime is 'long overdue' for a market that frequently targets vulnerable consumers.
"Whether retail staff will be given the training, resources, and time to do the job properly will be the next test," he remarked. Taylor-Barr also proposed that a minimum transaction limit of £100 should be considered to deter individuals from taking credit for small everyday items.
A Significant Advancement for Homeowners and Borrowers
Ranald Mitchell, director at Norwich-based Charwin Mortgages, described the regulation as a 'big step forward' in preventing silent debts from accumulating. He acknowledged that while Buy Now Pay Later addresses gaps in tight household budgets, it can serve as a warning signal for those relying on it as a coping mechanism.
"For anyone aiming for a mortgage, this matters," he cautioned. "Regular BNPL use can quietly erode disposable income and undermine affordability, even if you've never missed a payment elsewhere."
Seeking Assistance with Debt Management
For those struggling financially, numerous charities specialize in providing manageable solutions. Key organizations include Step Change, Citizen's Advice, National Debtline, PayPlan, MoneyPlus Advice, Money Wellness, and the Debt Advice Foundation, each offering dedicated support lines and guidance.
