Press Association reported research results which showed that one in eight customers between the ages of 18 and 34 using Buy Now, Pay Later services were referred to debt collectors.
Subsequent payment options appear on the checkouts of merchant websites offering to spread the cost of purchases. Usually interest free and avoiding expensive credit.
However, concerns have been expressed that some people end up spending more than expected due to this option, which then slips them into a debit that they cannot comfortably repay.
The government announced in February that interest-free purchase contracts and subsequent payments will be regulated by the Financial Conduct Authority (FCA).
The latest research from Citizens Advice estimates that buyers using these deals in the UK have collectively been charged Â£ 39million in late fees over the past year.
Citizens Advice estimates, based on its latest research, that buyers using these arrangements across the UK have collectively been charged Â£ 39million in late fees over the past year.
It commissioned a survey of more than 2,000 adults across the UK in July, who had used the service in the previous 12 months.
96% who were referred to debt collectors for missed payments said they experienced negative consequences such as sleepless nights, ignoring text messages, emails and letters in case it is in debt, to avoid answering the door and even deteriorating mental health
Of those who were referred to a debt collector for missed payment, 96% said they had suffered a negative consequence.
The charity has raised concerns that buyers are “misinformed” as customers are left to dig into the “fine print” or terms and conditions for information on credit agreements.
Citizens Advice asked BNPL companies if they had ever referred clients to debt collectors. Klarna, Clearpay, Laybuy and Openpay have confirmed they do this as a last resort, the charity said.
She stressed that debt collectors do not have the same powers as bailiffs.
Debt collectors typically don’t visit someone’s home, the charity said, although they do, and they have the right to take property.
A âbuy now, pay laterâ debt cannot be passed on to bailiffs unless there is an unpaid court decision, he added.
Citizens Advice shared the story of a woman in her 60s who tried to crash online. After struggling to find the shipping costs at the checkout, she decided to abandon her purchase. However, she later received an email informing her that she had signed a purchase agreement now, pay later and therefore quickly attempted to cancel her order.
She told Citizens Advice: âI really don’t understand how I ended up paying for my plants buying now, paying later.
âI didn’t understand what it was. Then I get these threatening emails saying they are going to contact the debt collectors, then I got a letter from a debt collector.
âI couldn’t sleep, I lay awake afraid that someone would come to my house and start taking things. I have a number of health issues and was worried it would make me sick again. This was finally resolved, but to me a great stress.
Millie Harris, Debt Advisor at Citizens Advice East Devon, said: âMy concern is that people don’t deal with the fact that buying now and paying later is credit. They don’t realize that there will be consequences if they don’t pay – it gives them a false sense of security.
âI’ve seen people use it for their children’s clothes and shoes that they otherwise would never have been able to afford. They take out what is effectively a loan, but they don’t see it as such.
âFor example, I helped someone who has tens of thousands of pounds in debt, but they don’t see buy now pay later as part of that total.
“It’s almost a debt under the radar.”
Dame Clare Moriarty, Managing Director of Citizens Advice, said: âA transparent buy now pay later process shouldn’t mean buyers have to dig into the fine print to find out they are taking out a credit agreement and could be. referred to debt collectors if they cannot pay. Warnings should be inescapable.
Citizens Advice urges anyone contacted by debt collectors to get free, independent debt advice.
Georgina Whalley of Openpay said: âOpenpay does not use enforcement agents, bailiffs or any other form of in-person debt collection service.
“We refer some unpaid arrears to a third party, but Openpay customers are only contacted by text, email and mail – never in person.”
Clearpay said, âAs a last resort, we sometimes pass information on to a debt collection agency.
“However, these are regulated by the FCA (Financial Conduct Authority) and operate under guidelines and frameworks for fair treatment of clients.”
Laybuy said, âLaybuy only refers a client to a debt collector as a last resort, and only after other attempts to collect the overdue payment have been exhausted.
âWhen a debt is referred to a debt collector, we only ever return the exceptional purchase price of the product. Late fees, which are capped at a maximum of Â£ 24 for a single order, are never passed on to a debt collector. Laybuy also pays all debt collection costs.
Alex Marsh, Director of Klarna UK, said: âAt Klarna we only use debt collection agencies to help us reach clients we cannot reach, and we do so for less than 1% of orders.
âThe collection agencies we work with are all licensed by the FCA and will only contact clients by phone or email and will not use bailiffs.
“We encourage all of our customers, whose circumstances have changed, to contact us so that we can help you with a plan to get back on track.”