The consumer watchdog has expressed concern about the proliferation of “buy now, pay later” (BNPL) schemes and warned that these were making it easier for people to buy products they did not need and could not afford.
The Competition and Consumer Protection Commission said there was a lack of education about how BNPL worked and said some financially vulnerable people could fall further into debt after being targeted by retailers offering what they believe to be free credit.
In recent years retailers and service providers have been teaming up with lenders such as Klarna and Humm to allow shoppers to spread the cost of products and services they could not immediately afford.
Typically a person is allowed to spread their payment over three months rather than paying everything up front.
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Central Bank of Ireland research has shown as many as one in four shoppers said they would consider using a “buy now, pay later” service to purchase items otherwise outside their budget.
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At the Oireachtas finance committee on Wednesday, CCPC chairman Brian McHugh said the increasing popularity of BNPL was not without its problems and he highlighted how the most financially vulnerable consumers were more likely to use such schemes.
He said the instalment payment schemes were even being marketed in some cases as a tool for savvy financial management.
McHugh said the downside risks that could result in people becoming more indebted, and in some instances with an impact on their credit rating, were not as well known as they should be.
He said instalment payments were “a long-standing feature of the consumer landscape”.
However, he said that BNPL products were different as they were “used in minor day-to-day purchases and are even promoted as financial management tools”.
While people used such services most commonly to buy technology and clothes there were many examples of people buying takeaways in effect on credit.
McHugh highlighted research, including studies by the Central Bank, that have recorded “a sixfold increase in global BNPL usage between 2019 and 2023 and shows concerning trends”.
He said BNPL “often makes consumers more likely to buy things they don’t need and spend significantly more than they had planned”.
McHugh also said such services were “more likely to be used by those who are already financially vulnerable”.
The CCPC highlighted Central Bank research suggesting that as many as a third of Irish consumers “do not realise that BNPL is a form of credit”.
McHugh said the CCPC had repeatedly warned of the risks of BNPL in its consumer awareness campaigns and would continue to collaborate with other stakeholders to improve financial literacy in this area.
Sinn Féin TD Pearse Doherty was critical of the proliferation of such schemes and he said some companies used them and targeted people who could not afford the products they were buying.
He said some operators were aware that using BNPL schemes would cause difficulties for some who would go into arrears on their payments and be hit with additional charges as a result.
