'Buy now pay later' firms could be the next Wonga, MPs warn
Failure to regulate 'buy now pay later' firms could lead to a fresh "Wonga-style scandal", a cross-party group of MPs has warned.
MPs have tabled an amendment to the financial services bill in a bid to force Ministers to regulate the industry to protect consumers.
Spending using 'buy now pay later' products has surged by more than a third during lockdown, leading to concerns that people are building up debt they will not be able to afford to pay back.
Firms including Clearpay, Laybuy and industry leader Klarna allow customers to stagger payments for products with no interest or fees, unless they miss payments.
John Spellar is one of 70 MPs urging Ministers to urgently regulate firms, which do not have to abide by Financial Conduct Authority rules because they don’t charge interest.
The Labour MP for Warley said it was vital that action was taken now to prevent "another Wonga-style scandal", referring to the payday lender that went bust after a surge in affordability complaints in 2018.
He said: "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 its too late and regulate these firms to protect consumers from racking up unaffordable debt."
The campaign, launched by Labour MP Stella Creasy, has been backed by Martin Lewis from MoneySavingExpert.com. He said: "'Buy now, pay later' 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."
Gary Rohloff, managing director of Laybuy, said he was broadly in favour of regulation but said it was a “complete misrepresentation” to draw similarities with the payday lending industry.
More than a quarter (27 per cent) of people who used 'buy now pay later' products said they could not afford to make the purchase outright.
