Complaints against BNPL firms increase 36 per cent

Analysis of exclusive figures from the Financial Ombudsman Service carried out by lender Creditspring has revealed that 220 complaints were made against BNPL firms throughout 2022, as opposed to 208 in 2021 and 162 in 2020. This surge is believed to highlight the need for extensive regulation of the BNPL market in order to increase consumer protection.

BNPL market and how it affects consumer behaviour

Based on the information detailed in Fintech Finance News’ announcement, the increase in complaints made against BNPL firms to the Financial Ombudsman Service comes at a time when people are increasingly reliant on either BNPL or other credit products, following households’ struggle with rising living costs. 

With the cost-of-living crisis continuing to impact households in the UK, people are starting to borrow for everyday essentials, which in turn leads to an increase in complaints against BNPL firms. Although the Financial Ombudsman Service is not yet responsible for BNPL complaints, the rise in people contacting the service with issues related to this showcases a need for legislation to protect borrowers and indicates that people have nowhere else to turn.

The announcement details that Equifax data shows that more than 4.1 million shoppers leveraged BNPL products for the first time in 2022, whereas Creditspring’s research showcases that approximately a third (29%) of people are using BNPL at least once on a monthly basis, with one in ten (9%) being unable to repay the owed money, with the percentage increasing to 16% for those in the 18-34 age group.

Earlier in February 2023, the HM Treasury made public details of the proposed enforcement powers for the FCA to regulate the BNPL sector, as well as an industry consultation. Incoming regulation is vital when it comes to addressing the growing risk of debt that a multitude of households are faced with following the increase in reliance on credit and BNPL particularly.

Additionally, misconceptions related to the risks of BNPL usage are also putting a financial strain on borrowers, as the announcement exemplifies how 8 million people in the UK have the wrong assumption that you cannot get into debt from using BNPL. Amongst the younger generation who leverage BNPL products more frequently, these misconceptions are more prevalent, with more than half of 18-34-year-olds being unaware that BNPL can lead to debt, as opposed to a third of all UK-based adults.

When commenting on the increase in complaints against BNPL firms, Neil Kadagathur, Co-Founder and CEO of Creditspring stated that this rise indicates a ‘desperate’ need for strong regulation across the sector, especially since household budgets are believed to be further impacted in the months to come following a wave of increased costs from rising water bills to council tax hikes. This is thought to lead to an increase in reliance on credit products, with BNPL likely to gain popularity.