Campaigners have called for new controls on “buy now, pay later” finance deals, which have spread online and in high-street stores and are being blamed for growing UK household debt.
Such deals have been in existence for years but have ballooned in number recently, with consumers being offered initial interest-free periods before typically being charged high interest rates.
Former pensions minister and debt campaigner Ros Altmann said cooling-off periods and more stringent affordability checks should be introduced before people took on new debts.
Her call comes amid mounting concern about the number of credit options available to shoppers and fears that people are taking on so many different debts that they lose track of how much money they owe and when they have to repay it.
Altmann said: “The rise of buy now, pay later retailing is of great concern, as more people are being enticed into high-cost debt that they may struggle to repay. Financial resilience across the population is weakening, debt levels are rising and if too many customers are unable to repay their debts in future, we could see a repeat of the financial crisis.
“I would like to see regulators insisting on cooling-off periods and affordability checks before customers are allowed to take on debts. The risk of another economic crisis caused [by] irresponsible lending is rising, and regulators should take this seriously.”
Figures released last week by the Office for National Statistics showed that household debt, excluding mortgages, has increased by 9% to an average of £9,400.
The Financial Conduct Authority announced new rules on the products earlier this year. The FCA said it had already taken “decisive action” and that companies that issued buy now, pay later agreements had to comply with creditworthiness rules which included affordability.
It added: “The further protections we have introduced are designed to reduce the harm experienced by some consumers who buy products using these credit offers. We have shown we will intervene where we see harms, and we remain vigilant in this and other sectors.”