Rise in buy now, pay later ‘exploiting people with mental health issues’ during lockdown
SHOPPERS suffering mental health issues are being pushed into debt during lockdown because borrowing money when buying online has become so easy.
The rise of buy now, pay later payment options at checkouts on many websites means it can now take just one click to make a purchase.
But people with a range of mental health issues often struggle to control their spending, and the simplicity of online shopping could push them into debt a leading charity has warned.
The Money and Mental Health Policy Institute, founded by Money Saving Expert's Martin Lewis, has found that buy now, pay later schemes are encouraging people with poor mental health to spend more than they intend to.
And pushy tactics from retailers like marketing emails and personalised recommendations also increase the risk of overspending.
Buy now, pay later lets shoppers buy items on credit and pay for it later on, usually around a month after but this can vary - or you can decide to spread the payment over several months.
Debt management plan (DMP)
A DMP is an informal agreement so you can stop it at any time and resume the normal debt repayments, or adjust your payments if your circumstances change, like you lose your job.
It ends when you've paid off the debt so it could last for decades.
Many firms charge a fee for the service, either upfront or one that's incorporated into your monthly payments.
If you're struggling due to coronavirus, contact your DMP provider so it can liaise with lenders on your behalf.
Debt relief order
If you're struggling to meet your IPA or IPO repayments, these can be updated if your income changes. You must contact your trustee immediately if this happens.
Equally, if you get a lump sum while you’re paying an IPA or IPO, you may be asked to make a one-off payment from it.
A DRO is way to have your debts written off if you have under £20,000 of debt and no assets.
You have to pay a £90 fee but you don't have to make repayments and after 12 months your debts are written off.
You can't apply for a DRO if you're a homeowner. It will negatively affect your credit score for six years and it may be difficult to get credit during this time and details will be published publically.
Bankruptcy
Bankruptcy is a last resort if there is no other way to repay your debts. It usually lasts a year but it can be up to three years.
A bankruptcy practitioner called a trustee will take control of your assets and sell them to repay your debts.
If you can afford it, the trustee will ask you to make regular payments towards your debts from your income through an income payment agreement (IPA).
If you can’t agree on payment amounts for an IPA, the trustee can apply for an income payment order (IPO). If you don’t meet these payments, the trustee can then apply to extend your bankruptcy.
It is much more difficult to get credit after bankruptcy and your credit rating will be affected by up to six years.
You could lose your house, possessions and some professions won't let you work if you've been made bankrupt.
If you own a business it could be sold and the details of your bankruptcy will be published publically.
You have to pay a £680 fee to go bankrupt.
"At its worst, this can leave people in thousands of pounds of debt, with a single day’s shopping spree causing years of misery."
The charity is calling on retailers to introduce features that help people avoid this debt trap.
This could be tools to manage their spending, such as the choice to opt out of buy now, pay later at the checkout or offering the option to add a cooling off period to their account.
Undy said: “With more people facing mental health problems this year, as we approach Black Friday retailers must take action to help customers stay in control.
"Simple steps, like making it easier for customers to avoid buy now, pay later options, could help people avoid serious financial harm at this difficult time."
It's not the only one to warn of the dangers of buy now, pay later - debt charity StepChange has warned of its "obvious risks" earlier this year.
A Klarna spokesperson said: "We at Klarna work hard to support customers who are struggling with their mental health and to ensure they don’t find themselves unable to manage their repayments - as we do with all our customers.
"We look forward to working with Money and Mental Health to further strengthen our support, and to ensure that customers feel safe when shopping online."
The Money and Mental Health Policy Institute is also asking the regulator, the Competition and Markets Authority (CMA), to make sure retailers are not breaking consumer protection laws by pressurising shoppers.
The CMA said: “Protecting consumers, particularly those in vulnerable circumstances, is a priority for the CMA.
"In recent years, we have taken action against businesses employing pressure selling tactics in the online hotel booking and secondary ticket sectors.
“The CMA is committed to taking further action as required against companies whose practices towards vulnerable consumers break consumer law.
"We will also advise government if we think that consumer protection law needs to adapt to new harmful business practices.”
‘Threatening’ debt letters that ‘make people suicidal’ were banned in October after a campaign by the charity and Martin Lewis.
Online shopping sprees using buy-now-pay-later schemes left one shopper £1,500 in debt and homeless.
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