Christmas shoppers warned of ‘buy now, pay later’ credit risks

Consumers in the Republic are being urged to carefully consider the terms and conditions attached to so-called “buy now, pay later” (BNPL) arrangements in advance of the Christmas period with many shoppers unaware that such deals are a form of credit.

In its latest consumer research bulletin, the Central Bank of Ireland has warned that agreements of this kind, allowing shoppers to pay for goods in instalments, often carry with them administration charges or fees associated with late payments.

BNPL deals are interest free and typically allow consumers to pay the first instalment up front. The remaining balance is then given as a loan and owed as a form of short-term credit to a third-party BNPL lender.

“While paying in instalments can be convenient and is a legitimate form of credit, a loan comes with obligations and additional fees if you miss a payment,” the regulator said.

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Last year, the Government enacted Consumer Protection (Regulation of Retail Credit and Servicing Firms) Act, protecting consumers who enter into any kind of hire or consumer purchase arrangement with a company, including BNPL deals. Firms providing such services are now required to seek authorisation from the Central Bank as a retail credit firm or as a credit servicing firm, as appropriate.

But the Central Bank’s latest research, based on a survey of more than 3,000 people, revealed that many consumers are not aware that BNPL arrangements are actually credit products.

A sizeable 36 per cent of survey respondents who said they have already entered into a short-term arrangement of this kind incorrectly said they believe BNPL to be a method of payment rather than a credit product.

Some 29 per cent of consumers who said they were considering using BNPL said they do not fully understand this type of deal but they would use it anyway.

“We want to support consumers during the Christmas shopping period, by asking them to think about the risks associated with using short-term credit, such as Buy Now, Pay Later,” said Gerry Cross, director of policy and risk at the Central Bank. “Before you click on that button online, or sign the form in-store, you should think about whether short-term credit is the best option for your needs.”

Mr Cross said the Central Bank has engaged with Ireland’s largest providers of BNPL services to make sure their terms and conditions are as clear and transparent as possible for consumers. “Consumers must be informed clearly of all relevant information, so they can make a fully informed decision on whether this product is right for them and the Central Bank continues to monitor these areas,” he said.