‘Buy now, pay later’ sector dodges regulation as MPs decline to act

DEBT

An attempt to regulate “buy now, pay later” companies has failed after MPs rejected calls for greater scrutiny of the controversial sector.

An amendment to the Financial Services Bill tabled by Stella Creasy, a Labour backbencher, said that buy now, pay later should come under the remit of the City watchdog, the Financial Conduct Authority.

However, this clause was rejected after a debate in the House of Commons.

Although 265 MPs backed the amendment, it was easily defeated with 355 members voting against.

Buy now, pay later firms have been repeatedly criticised for allowing shoppers to spend beyond their means. These services allow users to buy items without spending a penny upfront.

The sector has grown rapidly in recent years and accounted for £2.3bn of spending last Christmas.

Research for Telegraph Money by Credit Karma, a credit reporting firm, found that one in four shoppers had used buy now, pay later in the run-up to Christmas. The average bill was £170.

Before the debate, Ms Creasy said it was “vital we act before this becomes another Wonga-style scandal”. She had called for the sector to be regulated within three months of the Bill passing. The defeat of her amendment came despite cross-party support.

The sector may still face regulation once the Woolard Review into unsecured credit is completed.

The review, conducted by Christopher Woolard, a former FCA executive, is considering whether action should be taken to protect consumers from easy loans. It is expected to report this spring.

Some of the biggest companies in the sector, including Klarna, have backed the regulation of buy now, pay later.

Ms Creasy 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.”

Other amendments to the Financial Services Bill were also defeated. Proposals to extend the FCA’s regulatory powers to help so- called “mortgage prisoners” were also voted down by MPs.

Mortgage prisoners are homeowners who cannot switch to a cheaper deal because they cannot pass the affordability tests applied by banks, even if switching would lower their monthly repayments.

Many are former Northern Rock and Bradford & Bingley customers whose loans were sold to third-party firms after the original lenders collapsed. Defeated proposals included a cap on the rates that lenders could charge customers.

Campaigners said homeowners were being forced to pay thousands of pounds more for their loans than high street banks would charge.

Telegraph Money warned of ‘buy now, pay later’ dangers last February