Creditspring financial stability tracker

Jan 5, 2023 5:35:34 PM

What has happened?

In December 2022, Creditspring, a lender specialising in small no-interest loans, published its Financial Stability Tracker for 2022, which focuses on problem debt. The Tracker, a project introduced to better gauge borrowers’ financial situations, levels of understanding, and concerns, includes a detailed update on the position of Buy Now Pay Later (BNPL) users.

What are the key points of the tracker for BNPL firms?

BNPL is dangerously misunderstood. The Financial Stability Tracker has revealed that 81% of people across the UK still do not know that BNPL is unregulated, with more than half (47%) being unaware that BNPL schemes can lead to debt if scheduled payments are missed. 43% also do not know that BNPL providers can add a late payment fee in the event that repayments are missed.
14% believe that it is impossible to get into debt from using BNPL, and this rises to 26% amongst 18 to 34-year olds.
Since January 2021, BNPL has been the UK’s second favourite form of new credit, behind credit cards.
9% of BNPL users wish they had never used BNPL. Despite this, 26% of users are using it at least once a month, which is indicative of persistent debt.
The upcoming regulation of BNPL will provide some consumer protections; however, it is unlikely to go far enough to fully rein in what has become a huge market. Affordability checks in the BNPL sector are not robust enough. BNPL providers are not required to report users’ repayment history to credit reference agencies, meaning other lenders do not know how much BNPL debt an applicant may have. This reduces the likelihood of responsible lending and puts borrowers at a greater risk of falling further into debt.
In January 2022, HM Treasury closed an extensive public consultation on BNPL, which paves the way for a regulated legal framework. The Treasury has made a number of proposals, including the need for BNPL firms to better assess a customer’s ability to pay and repay. This is crucial to protect consumers, but will also help to protect lenders from missed payments or future fines, and will promote responsible lending by enabling them to offer transparent options to those who can afford them.
In the aftermath of the Treasury’s attention, things are slowly beginning to change. In February 2022, for example, the credit reference agency TransUnion announced that it will start including BNPL borrowing data on its credit reports later this year. This is a welcome step and shows the path that the rest of the industry should take ahead of regulation.

How can we help you?

If you’d like to know more about how we can help you with your BNPL arrangements or any other regulatory compliance issues, our specialist team is here to help.

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