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Chapter 1: What are the warnings about 'buy now pay later' schemes?
There are warnings today as well about the proliferation of buy now, pay later schemes that are often offered when buying goods online. The Consumer Watchdog has flagged to an Oroxus committee that these lenders are making it easier for people to buy things they don't need and can't afford, leaving them at higher risk of falling into debt.
For more on this, I'm joined by Conor Pope, Consumer Affairs Correspondent with the Irish Times. Morning, Conor.
Good morning, David. How are you?
Good, thanks. So buy now, pay later schemes. Basically, instead of paying up front, you're paying installments. Is that it?
Chapter 2: How do 'buy now pay later' schemes work?
That's exactly right. And on some levels, they can be a very effective way of buying a product. So the way they typically work is you buy the product and then you pay it over three installments over three months. And... If you pay over the three months and you don't miss any of the payments, well then the credit is effectively free. But the key word in that sentence is if.
Because then if you don't pay over the three months or if you miss a payment, well then you will be hit with very high charges for that credit. And I think what the CCPC was expressing concern about was... not the essence of the Buy Now, Pay Later schemes, but the fact that they can encourage people to buy products that they don't need with money that they don't have.
And there is that lack of education that people don't understand that they are effectively borrowing money to buy those products.
Chapter 3: What are the risks associated with missing payments?
And in the old days, buying stuff on the never-never and buying stuff on tick was a very common feature of our society. But people typically back then would have bought white goods or they would have bought TVs or stuff that they might have needed to keep their household going. And I think one of the difficulties with the buy now, pay later schemes is they're open to virtually everything.
So if you see a coat in a shop that you quite fancy, but you don't have the cash today, you can buy that coat and then pay it off over three installments. Or even if you're online and you see a takeaway that you quite fancy, but you can't afford the burger or the taco or the pizza or whatever it might be. you can buy that on the never-never.
And I think that is a problem for some people because the question then you have to ask, David, is if you can't afford the coat today, what makes you think you're going to be able to afford the payments next month and the month after that and the month after that? So, and obviously it's the same question that you need to be asking when it comes to the pizza. So...
it kind of makes the whole essence of consumption easier.
Chapter 4: Why do 'buy now pay later' schemes target vulnerable consumers?
And sometimes we do need those roadblocks in our way to stop us buying products that we can't afford and arguably don't need.
Yeah, and the problem, I guess, is if you buy the coat and the pizza and maybe something else, you have a whole rake of these repayments coming at the same time and that's where you end up getting into trouble.
That's exactly right and one of the things that the CCPC highlighted in the Oireachtas hearing yesterday was these schemes tend to target either consciously or unconsciously the most vulnerable people in our society when it comes to personal finances because somebody who has plenty of money is not going to need to use a buy now pay later scheme
So the people who typically will rely on them are the people who have the least amount of money. And as you say, you might buy one, two, three, four, five, six or seven things and then a month passes and you find yourself having to make multiple repayments when you're already financially stretched.
And I think the really important thing, and I think it was borne out in yesterday's hearing, and it's been borne out by central bank research, is that an awful lot of people don't even perceive this as a loan. They don't even perceive it as credit. And the difficulty then is, not only could you be hit with these penal fees if you miss payments,
But if you borrow over a certain amount, so let's say you do buy that coat, and it happens to be a particularly expensive coat of in excess of 500 euros, and then you default on that payment of 500 euros, and then three years or four years down the road, you look to borrow money or you look to get a mortgage, that will be a black stain on your credit rating with the central credit registry, and it'll be game over when it comes to getting that money.
So I think...
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Chapter 5: How do consumers perceive 'buy now pay later' as a loan?
It's not that these things are in and of themselves bad, it's that we can use them in a bad way and we don't understand sometimes just exactly what it is that we're doing.
And I suppose one of the problems with online shopping in particular is that these offers are everywhere.
That's true. And it's very alluring because you could be on a website somewhere and you don't have the cash, but you're going, oh my God, I could get this thing and I'd only have to pay 30 quid up front and then I'll have to pay 33 quid up front and then I'll pay 33 next month. And we are... Consumers, we like to acquire stuff. And this system of credit facilitates the acquisition of stuff.
And it's a relatively new thing. And I wouldn't be singling out any particular company, but the biggest and most well-known of these companies that's operating in Ireland is called Clárna. And Clarna has only really been operating here since 2021.
Chapter 6: What questions should consumers ask before using 'buy now pay later' options?
So whilst the never-never and the installment purchase and all that stuff is ancient in terms of an Irish societal perspective, this new thing is only five years old. And I think as a society, we're still coming to grips with it.
And I think it would be a good idea for every single person who's ever tempted by one of these things to stop and ask themselves the really simple question, do I need this thing and can I afford it?
One of the really interesting things Brian McHugh, the chair of the Competition and Consumer Protection Commission, said yesterday, and you report it in your piece in the Times today, is that these services are promoted as financial management tools. So they're being presented to the punter as this is a smart way of managing your money.
And I think Brian McHugh was absolutely spot on to highlight that as a concern. Because it can be sold to people as, you know, this is a way that you can manage your finances. Because you can't afford the coat today, but if you spread it over three repayments, it becomes imminently affordable or eminently affordable. So people say, oh, do you know what, this is a good way of managing my money.
And any kind of credit... Even this kind of alluring credit that's basically shoved in your face by the retailers sometimes, it's not a good way of managing your money. Because the question you always need to ask is, if I can't afford it today, what makes me think I'll be able to afford it next month or the month after that or the month after that?
And that becomes particularly problematic when there's multiple buy now, pay later arrangements entered into by a consumer.
Okay, Conor Pope, Consumer Affairs Correspondent with the Irish Science. Thank you so much for joining us this morning.
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