Rachel Fergusson, External Affairs Intern, Money and Mental Health

Buy Now Pay Later and mental health - what’s the cost?

23 November 2021

It’s a Tuesday evening and you’re scrolling aimlessly on ASOS. A satin midi dress catches your eye – it looks similar to the one Kylie Jenner was wearing on her Instagram last night. Rent came out a couple of days ago and there’s still ten days until pay day, but there’s a red ‘low in stock’ label tagged to the top of the advert and the dress would be perfect for your friend’s birthday party this weekend. While hovering at the checkout, you spot an option to ‘buy now and pay later’ – some of your friends have used it and, right now, it’s tempting. But is it a good idea?

Buy Now Pay Later (BNPL) services can be useful in helping people manage their costs, but for some it can be a gateway to falling into debt. And with the bombardment of flash sales and short term offers around Black Friday — which takes place this Friday —  the temptation to spend is greater than at any other point in the year. The allure of BNPL is clear, but with the risks it carries for those in financially precarious circumstances- and those with mental health problems – regulators and providers must act quickly to make it a safe option for all.

The rise of Buy Now Pay Later

BNPL providers like Klarna and ClearPay – which allow consumers to spread the cost of items over several months often without interest – are available at the checkout of most online retailers. The industry has expanded rapidly over the last few years, and in September Monzo became one of the first UK banks to offer a BNPL service to its customers. BNPL deals significantly reduce the ‘pain of paying’, and many consumers with tight finances find it useful to delay or spread out payments. But there are big concerns around the current lack of regulation around BNPL, leaving consumers at risk of buying more than they can afford and getting into debt.

BNPL, Mental Health and Debt

BNPL is undoubtedly convenient, but at what cost? The main concern raised by debt charities and consumer groups is about affordability. Our research suggests this type of payment makes it easier to spend, and we found four in ten (43%) users felt the option to pay later encouraged them to spend more than they can afford. A recent study by Citizens Advice revealed that two in five users struggled to meet a BNPL repayment in the last year

“It was never clear about the buy now pay later process. I found it difficult to keep track of how much I had paid/owed.” Research Community Member 

For people with mental health problems, BNPL can pose particular risks. Common symptoms of mental health problems, such as impulsivity, memory loss and difficulties with organisation, make it harder for someone to manage their finances and keep up with repayments. People experiencing low motivation may also find it difficult or overwhelming to read through the small print, leaving them unclear about how BNPL works and what happens if you miss a payment. 

“It is such an easy option and feels like the purchase doesn’t cost anything but when the payments are due later it’s unaffordable.” Research Community Member

The financial and mental health consequences of missing payments and getting into debt can be devastating. Charities have warned that BNPL deals are a ‘slippery slope into debt’, after research found that a staggering one in ten users had subsequently been chased by debt collectors. We know that debt has a significant impact on mental health and wellbeing, with people in problem debt three times as likely to have thought about suicide. Without regulation, vulnerable customers are left exposed to these risks without adequate protections.

Regulation now, not later

In February, the Treasury announced all BNPL products would come under regulation by the Financial Conduct Authority (FCA) following a review which found there was ‘significant potential’ for harm. This ruling means that BNPL providers will have to provide better consumer protections, including a requirement to undertake affordability checks.

The Treasury has now launched a consultation setting out its plans to regulate the UK’s BNPL industry. While these are welcome moves, regulation won’t take effect any time soon. With the consultation running until early January, and an FCA consultation to follow, it could be late next year or even 2023 before new rules come into force. This protracted timeline is leaving consumers unprotected and at risk of spending more than they can afford. With stark rises in living costs, the coming months are going to be a difficult time for many – meaning more people may use BNPL to ease costs. A recent survey found that one in ten people in the UK are planning to use BNPL to pay for part of their Christmas shopping.

Protecting vulnerable consumers should be a top priority for providers, regulators and the government alike. For this reason, the government and FCA must take action to regulate the sector as soon as possible. Convenience should never be at the cost of financial security or good mental health.