In his Financial Conduct Authority (FCA) Review published in February 2021 (see this blog from our chief exec Lex), Christopher Woolard stated that, for some, ‘buy now pay later’ (BNPL) is: “a really easy way to fall into problem debt”, and that there is:“ an urgent need to regulate all BNPL products.” There has been widespread media coverage on the negative impact of the growth in popularity of BNPL products across the UK in recent months, with The Scotsman writing that BNPL companies: “could be prompting a ‘debt crisis’ for online shoppers.” In fact, as early as September 2018, the Financial Times (FT) asked whether BNPL was: “the new ‘debt trap’ for millennials?” Consumer groups have also expressed worries that BNPL allows – and even encourages – consumers to too easily spend more than they can afford.
A study conducted by Finder shows found that four in seven people in Britain have used BNPL services, with more than half of these individuals increasing their BNPL use during the pandemic. 44% of BNPL users use it for ‘ease and convenience’, as online purchases using BNPL grow by 39% annually.
Registry Trust maintains the Register of Judgments, Orders, and Fines for the UK and Ireland, and we hold live data on monetary County Court Judgments (CCJs). The judgment rates we monitor are an accurate indicator of financial vulnerability in both the past (creating the indebtedness) and in the future (due to judgments impacting creditworthiness, thus exacerbating financial difficulty).
Although the average value of overall debts is currently increasing, BNPL debts remain characteristically low in value. The chart and graph below detail the quarterly proportion of the value of judgments from 2019 and 2020.This shows that the proportion of low value CCJs is increasing. For 2019, the average proportion of all judgments that were less than £100 was 0.24%, increasing to 0.33% in 2020. The proportion of debts under £100 peaked at 0.44% in Q2 of 2020. This increase coincides with the increase in BNPL use. We cannot claim that an increase in BNPL is causing an increase in low valued judgments, but we have noticed that the two factors correlate with one another.
The next chart shows the proportion of CCJs that are less than £100 across countries of the UK. The Republic of Ireland has been removed due to no judgments being under £100.
From Q1 2019 to Q4 2020, each country shows a general trend of an increasing proportion of judgments under £100. The highest proportion of judgments under £100 has been highlighted for each country in the chart below. Each can be found in the most recent year, 2020.
What we are seeing is that, although the value of these debts may be low, the volume of these low value CCJs and potential longer impact of them on individuals’ financial resilience, is a cause for concern. With the FCA stating that financial vulnerability has increased to one in four adults as a result of the pandemic, and that more people are using the service who may be unable to pay what they spend, a higher rate of BNPL related debts is expected in the coming months. At Registry Trust, we expect to see low value debts to continue the increasing trend. This is something we intend to continue monitoring and sharing with key stakeholders to inform how this is dealt with.
The FCA’s new ‘regime’ to monitor BNPL services means firms will now have to conduct affordability checks prior to allowing use of the service, and complaints can be escalated to the Financial Ombudsman if necessary. With greater protection from debt through BNPL services, the predicted increase in BNPL related debt may be less than expected – and we will be watching this with interest.
You can check if you or somebody you are concerned about has a CCJ using our TrustOnline website. For more information about CCJs and how to satisfy them, there is a variety of information in the ‘Learn’ section of the Registry Trust Website and the ‘Help Topics’ section of the TrustOnline website.
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