'Buy now, pay later' wrongly promoted as financial management tool, says consumer watchdog

LAST UPDATE | 1 hr ago

‘BUY NOW, PAY later’ has wrongly been promoted as a financial management tool, the consumer protection watchdog says.

The Oireachtas joint committee on finance and digitalisation met with the Competition and Consumer Protection Commission (CCPC) today to hear its concerns about the increasing popularity of pay-in-instalment plans for food, clothing, gadgets and more.

These indirect lenders provide credit to consumers by paying the retailer directly and then charging the consumer interest on future repayments.

There is an interest rate cap of 23% APR on all consumer credit agreements in Ireland.

The Central Bank’s found phones, clothing, footwear and cosmetics are among the products purchased.

Its research shows that almost one in five people said they wouldn’t have made the purchase if this form of credit was not available. Over a third did not realise that ‘buy now, pay later’ was a form of credit.

Rack up debt

Brian McHugh, the CCPC’s chairperson, told the committee that instalment plans are more likely to be used by those who are already financially vulnerable. 

“Buy now, pay later often makes consumers more likely to buy things they don’t need and spend significantly more than they had planned,” he said.

“And perhaps most concerningly, many consumers do not realise that ‘buy now, pay later’ is a form of credit.”

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Between 2019 and 2023, global ‘buy now, pay later’ usage increased sixfold, which the CCPC says is a “concerning trend”. 

“While payment plans are a long-standing feature of the consumer landscape, new buy-now-pay-later products are now used in minor day-to-day purchases and are even promoted as financial management tools,” McHugh said.

Last year, Deliveroo partnered with Swedish firm Klarna to allow users to break up the cost of their takeaway in-app. 

Klarna credit is interest-free, but missed payments can incur fees and unpaid debts may result in debt collectors being engaged.

Sinn Féin TD Mairéad Farrell, the Oireachtas committee’s chair, said politicians are concerned that vulnerable consumers could accumulate multiple ‘buy now, pay later’ loans and fall into debt, as late fees build up.

“There is also a risk that consumers may unknowingly damage their credit records through missed or delayed payments,” she said.

‘Dark patterns’

The CCPC has been running awareness campaigns about the risks of paying for small items in instalments.

Sinn Féin’s Pearse Doherty told the committee that zero-interest “doesn’t exist” with these firms, but rather it’s “zero interest knowing that somebody isn’t going to pay so they’re hit with exorbitant fees”.

The Donegal TD said he’d heard reports of ‘buy now, pay later’ being the default option for payment on some apps.

McHugh said it’s a “real question”, whether consumers are being “misled” or “dark patterns” are being used by businesses to promote payment plans.

He said the CCPC does look at “what journey do businesses take consumers through before they make their choices”.

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