Complaints against BNPL firms rises 36% in 3 years

By Onome Amuge

Consumers’ complaints to the Financial Ombudsman Service against buy now pay later (BNPL) firms have increased by 36 per cent in the past three years, according to data from Creditspring.

The U.K based inclusive finance company in its analysis found that 220 complaints were made against BNPL firms in 2022, a significant rise  compared to 208 in 2021 and 162 in 2020.

BNPL is recognised as a type of short-term financing that enables consumers to make purchases and pay for them at a future date, usually with no interest.

According to Creditspring, usage levels of BNPL have been on a fast-paced increase over the years. It is also considered one of the fastest growing components of the lending market in many countries, fuelled by  rising demand attributed to a flood of investment into the space by banks, venture capital and credit investors.

Also, data from American multinational consumer credit reporting agency Equifax shows that over 4.1 million shoppers used BNPL products for the first time in 2022.

Neil Kadagathur, co-founder and CEO of Creditspring, noted that despite the positive consumer appetite, the rise in complaints against BNPL firms indicate the desperate need for strong regulation across the sector.

“However, given it has taken two years to reach this point, we’re unlikely to see the much-needed consumer protections appear anytime soon,”  he added.

Kadagathur reasoned that most BNPL products are offered or promoted in a way that encourages people to use them recklessly.

“If people use BNPL for multiple purchases at once, in a couple of months’ time the total repayment amounts due can rapidly spiral out of control,” he explained.

With borrowers urgently needing support more than ever,  the Creditspring CEO advised lenders to ensure that they’re educating consumers on the risks, protecting borrowers from debt and lending more responsibly with stringent affordability checks.

Kadagathur added that the rising complaints indicate a need for stronger regulatory action based on the prospects of an even greater reliance on credit products.