Purchase and payment service Klarna will start reporting the use of Buy Now, Pay Later (BNPL) products to UK credit reference agencies from this month.
It will report consumer purchases paid on time, late payments and unpaid purchases for “pay in 30” and “pay in three” orders placed on or after June 1 to Experian and TransUnion. Klarna said the move will protect customers and provide the industry with greater visibility into the use of BNPL, helping to improve affordability ratings.
However, the move will not have an initial impact on UK consumer credit ratings, as it requires further updates to scoring mechanisms, Klarna said.
Alex Marsh, Director of Klarna UK, said: “It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate that they can use credit responsibly and build their credit profile.
“That will start to change this year, as the vast majority of the 16 million UK consumers who make Klarna BNPL payments in full and on time will be able to demonstrate their responsible use of credit to other lenders.”
Klarna said other previously announced changes include updated text at checkouts to clearly state that BNPL options are credit products, with consequences for missed payments, and the introduction of an internal complaints arbitrator. .
Concerns have been raised about the rapid growth in popularity of BNPL companies in general.
While BNPL products can help people avoid paying interest on their loans, some can quickly rack up debt by using them as an option at online checkouts.
In February, the Financial Conduct Authority (FCA) said some BNPL companies had agreed to change the terms of their customer contracts to make them fairer and easier to understand.
The UK government plans to change the law to incorporate certain forms of unregulated BNPL products into FCA regulations.
Jenny Ross, which one? The publisher of Money, said: “Using buy it now and pay later is an easy and convenient way to pay for millions of people. However, with currently little to no information or warnings about the risks of incurring late fees or going into debt, it raises concerns that many buyers do not fully understand the products they are using.
“The decision by BNPL providers to work with credit reference agencies to flag customer use of BNPL and missed payments is a step in the right direction, as it could help mitigate the risk of consumers contracting more BNPL credit than they can afford.
“However, this does not remove the urgent need for government regulation of all BNPL businesses to follow as soon as possible to ensure users are properly protected.”
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