I shall speak to new clause 7 in my name and those of over 70 other Members from across the House.
This Christmas, one in four consumers used “buy now, pay later” credit to pay for their Christmas shopping. It is a simple premise: these companies allow people to spread payments for items over a series of weeks, breaking what seems a high cost up-front into chunks they can take out on their debit or credit card, with no interest charged. There is a place for this industry in the UK, just as there is a place for payday lenders like Wonga, but Wonga is no longer with us because it used technology to exploit an age-old problem that many face: too much month at the end of their money. In lending to who it did and in the way that it did, ultimately Wonga went bust, but not before it had plunged millions in the UK into debt.
The companies in question say that it is not fair to compare—that this is just how millennials want to buy. Well, as old as I am, I do know this: when it comes to credit, if the deal is too good to be true, it probably is. Compare the Market research shows that these forms of credit have been used 35% more during the pandemic as everybody shops online. Most UK retailers have Klarna, Clearpay or Laybuy now as a payment option—indeed, it is often the first one people are given. Retailers pay for their services because they know that if people use them, they will probably spend more than they are meant to—on average 30% to 40% more. Which? research shows that 24% of users spent more than they planned to because such an option was available at the checkout. As the Minister said, many then end up taking out debt to repay that debt. If it looks too good to be true, it is.
Increasingly, consumers are being caught out, committing to more spending than they can afford. Twenty-seven per cent. of users said that they used the option because they could not afford the product they were buying outright in the first place. Currently, this slips through a regulatory loophole because the companies do not charge interest and make you pay within—[Inaudible.] It means that they do not have to abide by the existing information offers that other forms of credit have to.
FCA rules require lenders, before they lend, to highlight the key costs and risks of the credit product. Contrast that with the behaviour of these companies. Shortly before Christmas, the Advertising Standards Authority upheld my complaint about adverts by Klarna that involved social media influencers encouraging followers to use Klarna to buy products to improve their mood during lockdown: if they had mental health issues, debt was the answer. On its Twitter, it tells its customers who ask about its product that it is the “smoother” way to shop. You can get
“what you want, when you want”— with no mention of what happens if you do not pay or checking of whether you can afford to repay. And because it is not regulated, there is no redress through the Financial Ombudsman Service either.
Ministers say, “Let’s wait for the FCA report”, and that they are ready to take swift and proportionate action. That is exactly what new clause 7 does. It ensures that whatever comes out of that review will get the parliamentary time to be put into practice within three months of the Bill becoming law. If we leave it longer, waiting and waiting as we did with the payday lenders, our constituents will suffer. Even the companies themselves, just like turkeys who think Christmas is a good idea, say that regulation should happen.
So much of the history of credit regulation in this country has been one of delay and dither—and debt as a result for our constituents. Constituents are now living through a time when millions are furloughed and many more are facing redundancy, so their income will get lower, not higher. I know that the Minister recognises that there is a problem here. I brought forward new clause 7 so that we can put his words into practice and make sure that it is not our constituents who end up paying the price later.