The Fair Credit Charity is the new name for Fair for You Ltd, the anti-poverty and financial education charity which owns Fair for You CIC. Its chair, Tom Levitt, says:
“The Fair Credit Charity tentatively welcomes the steps taken by Klarna to provide information on buy now, pay later (BNPL) debts that will start to appear on consumer credit reports – but this move does little to help financially vulnerable customers most in need of protection from debt.
“The charity has been concerned for some time that, by avoiding reporting to credit agencies, BNPL firms are making it harder for financial services firms to lend responsibly. This means many customers may be allowed to take on new debts despite it being inappropriate or unsustainable. Meanwhile, other customers may not be able to get credit despite having a strong track record of paying off BNPL loans, which potentially means they resort to riskier options such as illegal lending.
“We hope others will follow suit. Our analysis of loan application data, provided by ethical lender Fair for You, shows that the most financially vulnerable customers are using other BNPL providers including Clearpay, Studio, Freemans or Littlewoods – it is time that they made the same commitment, for the sake of their customers.
“Low-income households which use BNPL are likely to do so out of need or a lack of viable alternatives, rather than because of the choice and convenience which has attracted many consumers to this form of payment. We are worried that BNPL remains too enticing to customers who are most likely to struggle to repay – the fact that one in 10 BNPL customers fall into bad debt shows that this can be ruinous to families.
“BNPL needs to make it clearer to all shoppers that they are entering into a credit arrangement – the process is currently too seamless. They also need to perform more rigorous checks on all lenders, just like regulated lenders do. And they must all make sure that all BNPL loans are visible on a customer’s credit files – until they do, many lenders will not be able make fully informed, responsible decisions, and consumers will suffer.
“Fair for You is getting around the lack of visibility of BNPL debt by using open banking when possible but there are varying levels of applicant willingness to allow them to do this. Its data shows that BNPL use has been consistently increasing among its demographic of lower income applicants in the last couple of years – although few of them are using Klarna.”
For more background on Klarna’s new policy, see this BBC story.