TWENTY years ago, I presented a BBC Radio Scotland series called “Buy Now, Pay Later”.

The premise of the show was to understand why so many of us now used credit to satisfy our need to buy consumer goods.

Traditionally, we would wait and save the money to buy a dream holiday, car or must-have fashion item.

Then came a cultural and behavioural shift in society. Retailers working with advertising agencies and credit providers told us we no longer had to wait to buy something. It could be ours today on credit. Pay it back in the future with manageable instalments.

The wisdom of grandparents warning us “never a borrower or lender be” was jettisoned by new generations. The saying comes from Shakespeare’s Hamlet when Polonius gives sage advice to his son.

For the BBC show, they had me accompany young people shopping for ridiculously priced glitzy designer gear in high-street stores. Of course, there was an unhappy ending to that story for some.

I did a covert interview with a debt collection firm whose unique selling point to creditors was to send two 6ft6 skinheads to a debtor’s home following a credit default. It was the ugly side of a massive market. Today, UK households owe £250 billion in unsecured consumer credit debt.

The good news is there have been major advances in the regulation of these issues and credit generally over the past two decades; with much stronger protection for borrowers. But nature abhors a vacuum and businesses will always find innovative ways to sell you stuff you think you need.

The big growth area since last year has been the unregulated buy now, pay later (BNPL) market. Typically, these are products that allow you to buy goods from a shop instantly while the cost is spread over a number of instalments interest-free. Leading providers of BNPL include Clearpay, Klarna, LayBuy, Openpay and Paypal.

Last week, the UK financial regulator – the Financial Conduct Authority (FCA) – published its review of the unsecured credit market. It’s calling for BNPL to be brought under the scope of its rules to provide consumer protection for debtors. At present, these new forms of credit are exempt from financial rules and consumer protection.

The use of BNPL products almost quadrupled in 2020 and is now at £2.7bn, with five million people using BNPL interest-free loans since the beginning of the pandemic. The FCA found more than one in 10 customers of a major bank using BNPL were already in arrears.

The growth of BNPL was boosted by the fact most of us have had to stay at home during Covid-19. Since lockdown, more retailers have focused on online sales that offer a one-click seamless customer journey to buy goods on a BNPL basis.

The FCA’s review revealed 25% of BNPL users were aged 18-24 and 50% were aged 25-36, 75% of all users were female and 90% of transactions involved fashion and footwear.

Credit has become an essential tool for most people. The FCA undertook consumer research as part of its review of BNPL, and

for many people accessing a

short-term interest-free loan was a good thing. One person said: “It’s ideal for the emergency purchases where you don’t have the money now.”

BNPL represents a handy way to spread the cost of a purchase over a few months with no extra cost. Yet, with the positives come a host of worrying negatives.

Some customers told the FCA’s researchers: “I felt a buzz, I could buy so much stuff! But I needed to be careful, my impulsiveness could be my downfall.”

Another said: “If I’m at my limit with Klarna, I’ll look and see if the shop offers another type.”

Most consumers don’t see BNPL as credit because it looks like a debit payment. Being offered a £150 product at “zero cost” with nothing to pay until next month when you will commence three monthly payments of £50 is more enticing than having to fork out £150 there and then.

BNPL is the holy grail for impulse sales. And that can be the highway to very serious debt and grief. Most BNPL require a soft credit check – which doesn’t impact on credit scores – or no check at all.

Because these products aren’t regulated there’s no right to complain to the Financial Ombudsman Service – which comes as a surprise to most consumers. The lack of consumer protection with BNPL is a lacuna in the law; they have slipped through the net by using an old exemption never intended for them.

The FCA has asked the UK government to empower them to fix this. Action is needed urgently to ensure people aren’t exposed to unnecessary financial detriment during the pandemic.