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Buy now, pay later food is a 'debt trap' for struggling families

Britain’s families affected by the cost of living crisis are being targeted by credit firms offering “buy now, pay later” deals on weekly groceries, pet food and hot drinks.

Shoppers are being urged to spread their payments for basic foods and sweets to help cope with “these difficult times.” One campaigner says: “Regardless of your credit rating, we will offer you a ton of credit to trade with.”

The sector is facing new regulation, but welfare groups warn that the new form of credit is “like a runaway train.” The products typically offer interest-free credit with the money paid in three or four rounds over a month or longer.

Klarna, the biggest player in the buy now, pay later sector, has focused on partnership agreements with retailers selling fashion and household goods, but some operators promote credits for groceries, fast food and hot drinks.

An investigation by the British Observer has found:

Tech finance firm Zilch, worth £1.5bn, is announcing a purchase now, paying later with supermarket Iceland, with ready meals, pet food and carbonated drinks on offer with the first payment of 25% of the shelf price, and the remaining part interest-free for six weeks. The firm also markets home-delivered food and coffee on interest-free credit.

An online grocery store called Flava offers purchases now, paying later credit to families struggling without credit reports for products from Kellogg’s Coco Pops to Pot Noodle. Its website says: “Stop worrying about how to survive the lockdown.”

Clearpay, one of the biggest operators for buying now, pays later, promoting vodka and gin retailers and candy stores online on its website, where the products can be purchased on interest-free credit for six weeks.

Analysis: No one should buy fresh produce as food on credit. It’s an invitation to debt and bankruptcy.”

A report by Bain & Company, a consultancy, has estimated that the market is worth around £6.4bn a year in the UK, based on industry data, and is used by around 10 million shoppers.

The Ministry of Finance will publish proposals later this year on regulation of the sector, which are not covered by consumer credit laws because no interest is charged on the debt. Some of the companies charge transaction fees and penalties for late payments.

One in three buy now, pay later users have missed a payment or made a late one, according to a report published last year by the charity Citizens Advice. The report found that consumers using the credit products had also been charged £39m in late fees over a year.

Analysis: It’s like a runaway train. You can trade 24 hours a day and easily lose track of how much you owe, and there isn’t enough protection for people who fall into debt.

The British company Zilch, which describes itself as the “fintech darling of the UK”, is one of the first purchases now, later paying suppliers operating with consumer credit permission from the Financial Conduct Authority (FCA), but facing scrutiny over marketing of its product for groceries, drinks and home-delivered food.

Zilch has announced on Facebook that consumers can “pay back over six weeks” for Domino’s Pizza and Uber Eats. It also advertised that consumers can pay in four interest-free installments for their coffee.

The company announced last week the purchase now, paying later in Iceland. Two large salmon fillets were marketed for an “initial payment” of £1.50; a box of 40 bags of Winalot dog food was marketed for an “initial payment” of £2.25, and a carton of 24 cans of White’s fizzy lemonade was marketed for an “initial payment” of £1.75. The remainder of the shelf price is paid for six weeks.

Online food store Flava has paved the way for purchases now, paying later for groceries, and offering ‘£100 credit guaranteed’. The site, which says it offers a “ton of credit,” says: “If you’ve struggled with credit in the past, an unnecessary search of your credit file will only hurt it further, which is why we don’t.”

The repayments can be made for four weeks and are interest-free. Many of the Flava campaigns are for products high in sugar and fat. Its special offers last week included a 2.7kg can of Original Choc Nibbles for £18.99 and a Dobsons Cream Soda Mega Lollies jar for £18.

Clearpay also promotes buying now, paying later for food and drink. The companies marketed on its website include Drink Supermarket, Beerhunter, Bottle Bling, Sweet Shack and Happy Candy UK.

Analysis: buy now, paying later can cause a shopper to quickly accumulate £1,000 in credit by using multiple lenders and it can hurt the consumer.

Zilch says it offers a better, more affordable option for consumers than credit cards and does not allow any installments on items costing less than £5. It also offers its customers to pay with debit in a payment and earn cashback.

The company said it had safeguards for customers, which included freezing additional expenses when a partial payment has not been paid.

Alex Marsh, director of Klarna UK, said: “Unlike credit card providers, which for decades have kept people in debt with sky-high credit limits, minimum payments and interest rates, our BNPL products are interest and free and provide consumers with a clear repayment schedule.”

Analysis: Any credit card or purchase now, pay later schedule is bad for consumers, consumers have to learn to live with the funds they have then get deals that put them in debt. All free money schemes must be regulated and written into a law that benefits consumers and that measures can be taken to prevent harm.

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