Stronger safeguards are needed to protect the millions of UK shoppers who use “buy now, pay later” deals because many people do not realise they are taking on debt, a consumer body has warned.

Buy now, pay later (BNPL) lets shoppers delay payment for an item with no interest or charges – unless you fail to pay it back on time, at which point some firms impose late fees.

The three main BNPL firms are Klarna, Clearpay and Laybuy, and this form of unregulated interest-free credit has enjoyed explosive growth during the coronavirus pandemic, particularly among the under-30s and those with tight finances.

In response to concerns, the government announced last February that BNPL would be regulated by the Financial Conduct Authority, though the rules are unlikely to take effect until later this year or in 2023. A Treasury consultation, which closes on Thursday (6 January), will be followed by an FCA consultation.

In the meantime, stronger safeguards – such as affordability checks and making small print more accessible – are needed now, according to the consumer organisation Which?

It said many of the BNPL users it had interviewed did not think of these deals as a form of credit – instead, they described them as a “way to pay” or a “money management tool”. This meant they could unwittingly be exposing themselves to a range of potential problems if they failed to pay back on time, such as late fees, black marks on their credit report or having their case referred to a debt collector.

Though BNPL is a form of credit, it works differently to more traditional methods of borrowing such as credit cards. For example, not all BNPL schemes run “hard” credit checks, whereby a full search of someone’s credit report is carried out.

Rocio Concha, the director of policy and advocacy at Which?, said: “BNPL schemes can offer speed and convenience at the checkout, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments.”

The consumer body said that, “given the immediate risk,” BNPL firms should make their terms and conditions more accessible now. It added that affordability assessments should be carried out for all transactions before regulation is introduced.

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Buy now, pay later customers unaware of debt risks, warns Which?