Complaints against BNPL to UK’s Financial Ombudsman on the rise

Complaints against buy now, pay later (BNPL) firms to the UK’s Financial Ombudsman Service (FOS) have increased over the past three years, according to data obtained by Creditspring.

A Freedom of Information Act request by Creditspring revealed that 220 complaints were made against BNPL firms last year to FOS, up from 162 in 2020, equating to a 36% rise.

FOS is not yet responsible for handling complaints about BNPL, given the sector is awaiting regulation.

The UK government announced its intention to bring currently exempt BNPL products into regulation “in a proportionate way” back in February 2021.

This month, it launched an eight-week consultation on proposed draft legislation that will see BNPL regulated by the Financial Conduct Authority (FCA), with stakeholders invited to respond by 11 April 2023.

Creditspring CEO Neil Kadagathur

Neil Kadagathur, co-founder and chief executive officer of Creditspring, a credit subscription service regulated by the FCA, said rising complaints against BNPL firms indicate the “desperate need for strong regulation” across the sector.

“However, given it has taken two years to reach this point, we’re unlikely to see the much-needed consumer protections appear anytime soon,” he said.

Creditspring’s own research found that 29% of people use BNPL at least once a month, with 9% unable to repay the money they owe – rising to 16% for 18 to 34-year-olds.

More than 4.1 million shoppers used BNPL products for the first time in 2022, according to data from Equifax.

Kadagathur warned that, with household budgets likely to be hit by further rising living costs over the next few months , this will “inevitably lead to an even greater reliance on credit products”, and added that BNPL is likely to grow in popularity.

“If used correctly, BNPL offers more flexibility to UK shoppers. However, like many credit options, these products are offered or promoted in a way that encourages people to use them recklessly,” he said.

“If people use BNPL for multiple purchases at once, in a couple of months’ time the total repayment amounts due can rapidly spiral out of control.

“Borrowers urgently need support now, so the onus is on lenders to ensure that they’re educating borrowers over credit the risk, protecting borrowers from debt and lending more responsibly with stringent affordability checks.”

At Open Banking Expo UK in October 2022, panellists representing the credit and lending industry discussed impending BNPL regulation.

Clearpay’s director of public policy and regulatory affairs in the UK and Europe Iana Vidal said: “The vast majority of customers are a lot smarter than we think and actually make really good decisions with their money.”

Equifax UK chief product and marketing officer Jayadeep Nair, the discussion moderator, suggested the government is engaged in a delicate dance to regulate the market without killing it.