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News 21/11/22

AFM warns: Using ‘Buy Now, Pay Later’ (BNPL) is easy but it has risks too

‘Buy Now, Pay Later’ (BNPL) offers consumers advantages such as flexibility, and helps online shops increase sales. However, for consumers who are financially vulnerable, the use of BNPL can contribute to debt accumulation, particularly in the current economic conditions. In addition, the growing popularity of BNPL may lead to debt habituation, i.e., the normalisation of buying on credit. The Dutch Authority for the Financial Markets (AFM) concludes this in a study on the growing market for BNPL.

In a nutshell

  • BNPL may lead to debt habituation.
  • Most BNPL providers are not affiliated with the Credit Registration Agency (Bureau Krediet Registratie, or BKR) and do not have insight into the debt position of consumers
  • Debt collection costs must be in line with statutory requirements
  • The AFM favours European legislation for BNPL

‘Buy Now, Pay Later’ can create debt habituation

BNPL enables consumers to defer payment for online purchases fully or partially until after delivery. Webshops that offer BNPL often focus on consumer goods that lend themselves to impulse purchases, such as clothing and cosmetics. BNPL may erode the social norm of saving for a purchase first and paying for it immediately, which can lead to ‘debt habituation’. The AFM considers this a worrisome development, especially in economic times when consumers may be looking for ways to maintain their spending habits.


‘Buy Now, Pay Later’ can lead to debt accumulation

BPNL creates a real risk of debt accumulation since it can also be provided to consumers who may already be over-indebted. BNPL providers are not legally obliged to check the income and expenses of consumers and are not affiliated with the Dutch Credit Registration Agency (Stichting Bureau Kredietregistratie, or BKR). Due to current economic circumstances, the AFM is even more concerned about the risks of BNPL. Consumers with insufficient financial means may see BNPL as a short-term solution to their financial difficulties. In the long run, however, it may cause them more financial problems.

Most BNPL providers do not have insight into the debt position of consumers

Consumers are often under the impression that BNPL is free of charge, so they may be surprised by relatively high costs that are due for late payment. The AFM emphasises that BNPL providers must ensure that the debt collection costs they charge are clear to customers and consist only of statutory collection costs. The AFM expects providers to be able to demonstrate that they, as well as the collection agency they work with, comply with statutory requirements.

The AFM favours European legislation for BNPL

The AFM does not currently supervise the provision of BNPL. This could change in the future as the European Commission has proposed to regulate BNPL within the Consumer Credit Directive. BNPL providers would then have to comply with a variety of requirements regarding the provision of information, creditworthiness assessment and arrears management, among others. Considering the risks of BNPL, the AFM supports this proposal.

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