Klarna, Clearpay and others face new regulations
2 years ago
Sites such as Klarna and Clearpay have been set up to make shopping ‘easier’ by introducing post-payment plans. The concept is being constantly glamourized by social media influencers who encourage the use of the instalment plans that are an alternative to credit cards – supposedly preventing you from facing hidden fees or interest on payments.
These types of payment plans are easy ways to pay and can be considered virtually essential for young fashion fanatics and consumers. However, it was inevitable that the status quo could not be left as it is and change is now stated to be a matter of urgency.
The pandemic and the subsequent lockdown have, to no surprise, sent online shopping sales booming alongside the usage of buy now, pay later services.
According to the Financial Conduct Authority (FCA), nearly five million buyers have used these instalment plan services, totalling around £2.7bn in the last year.
The FCA also reported that it’s become increasingly easier to build up the debts owed to these companies to £1,000, all without realising. Worryingly 1 in 10 people that are using these services to avoid upfront payments are reportedly already in debt elsewhere.
Before any type of regulations were introduced, the online retailers were benefiting drastically because the checks were minimal, hence why it has been known to be a fast and easy checkout. But with the risks of consumers (especially those that aren’t as educated in the subject) drowning so far in debt, action is needed.
Affordability checks will now be implemented before lending the money and there will be fair treatment ensured for those that are struggling to repay their debts.
Government talks are currently underway to bring in legislation as soon as possible following consultations with the heads of the companies who also agree it’s time to regulate.