Even on Flex they’ll have regulations as to amounts they can lend people.
The issue is regulations on how much they can lend haven’t been caught up with repayment style which is very different.
Fees and insane interest were tackled to prevent people becoming overwhelmed with debts, but this is a product that can, in theory, have a reasonable overall limit (£5,000 on a regular credit card isn’t unusual), with a reasonable interest rate (29% on a regular credit card isn’t unusual) but with an almost unregulated repayment style.
It’s that last part I think will be changed in due course.
To be clear, again, you may very well be perfectly able to manage a high limit fine. I’m not suggesting you aren’t. Just because you are doesn’t mean no regulation is required. There are plenty, countless in fact, of stories of folk who thought the very same thing who bought into BNPL products and over time got far too much into debt that they couldn’t get out of it.
I’m basically rehashing my previous concerns here though. I genuinely believe I’m not saying anything that in 5 years time will be controversial and likely just accepted as “why on earth did they ever allow that to happen” but for now, outlier I remain!
My comment was a bit tongue-in-cheek I know that there are all sorts of parameters that are used to assess what they feel is a suitable credit limit for a particular person. I do share your concerns over regulation, though.
It’s the same as with many other laws and regulations.
Take speeding.
A particular person may be very capable of driving through a 40mph zone at 70mph, have hawk-like reflexes, and amazing control of the car. But many people aren’t like that and would end up killing themselves, others in the car, and others on the street, so speed limits for all it is.
People might ask for whatever outlandish thing that may or may not be within the law or within moral norms. Monzo doesn’t have to act on it if that’s the case.
You’re absolutely right though in that it is a no-win situation.
I get what you mean but I don’t think it’s as simplistic as that. Compare it to payday loans, if they said that they were making it easier to top up your 2000% APR borrowing with just a little bit more to get you to the end of the month, or they let you reduce your monthly payments to help stretch those last few pounds, and that they were doing that because customers had asked for it or because “some people may need it”, I don’t think that would be seen as a good thing at all. The fact someone may be in such a position that they need it doesn’t inherently make it good by any means.
Having the opportunity to learn from things is one thing, but if the alternative is spiralling debt that ruins their life, I don’t think that justifies the “opportunity” to learn. The flat I bought was repossessed and I received mail for the previous owner for about two years, their life was absolutely ruined and they had all manner of financial products taken out. I can’t speak for them but I doubt they’re grateful they’ve at least learned from it and wouldn’t rather have not got into the mess they were in in the first place.
There’s a phrase “don’t give people rope to hang themselves with” which in my profession of making websites for clients is used to mean things like not giving the client access to delete key pages from the site that will bring the whole thing down, or to delete their own account, as in don’t give someone access to something that will create a problem if they use it. I know people can easily get into debt with regular credit cards, but the whole point of BNPL products is trying to frame it as “it’s only a small payment this month, don’t worry”. You get lulled into a false sense of security that doesn’t quite happen with regular credit cards.
My reservations with BNPL products has always been how the payments stack from one month to the next - in month 2 you pay repayments from month 1, month 3 you have payments from month 1 and 2, month 4 it’s from month 1 2 and 3, etc etc. So even though it feels like they’re small payments, they soon stack up, which seems to be precisely what happened here and is what led to the feedback, and surely having to reduce them only acknowledges that that was indeed a problem in the first place.
There’s a reason that Klarna et al are on the radar of regulators, and I think this change essentially highlights precisely why that’s the case. If reducing minimum payments to as low as 50p is the solution, I don’t like the sound of the problem.
Interesting to read the comments here. Having used credit cards for over 40 years I really like the clarity of Flex and the fact that you can see exactly what each transaction will cost.
I usually pay all my cards off each month in full but recently (within the past 5 years) accidentally underpaid a the full amount outstanding on a traditional credit card by £0.02. The following month I was charged almost £19 in interest.
It’s practically impossible for a traditional card to work out what it’s costing you (and will continue to cost you) if you don’t pay in full. Flex allows you to see and adjust your interest costs.
I personally feel that’s less predatory than an opaque set of calculations and “order in which payments will be applied” to your outstanding balance.
I’m not really sure that’s true unless people don’t read the statements. Every statement I have has a line where it says what the estimated interest next month will be based on the balance, and has a table that breaks it down by balance type (purchases, offers etc). Sure, it’s not broken down for each granular transaction, but saying it’s impossible to know is a bit of a stretch.
And I’d argue if the minimums have been reduced from £2 to 50p here it doesn’t seem like it was clear how much it was going to cost, as it was supposedly too expensive with a £2 minimum, but if it was clearly communicated at the start as you’re saying then people would have known how much it would be every month, so why did it need to change? The fact it’s changed suggests the minimums became larger than people expected which is what I’m getting at has always been my issue with BNPL products as the small individual repayments add up quicker than people realise, which I still feel is proven by this change existing.
I guess I must still be misunderstanding how “minimum payments” work in Flex, if anyone wants to explain to me again. My understanding is if I split a £30 payment over 3 months the repayment for that purchase each month is £10, or if it was 6 months it’s £5. If it’s paid back in fixed instalments I don’t see where a 50p minimum comes into it as to have that as the repayment over 3 months means you’re flexing £1.50? I must be missing something.
Or, maybe the concept of flexing (and potentially paying interest) on every single small transaction seems unnecessarily complicated to me and I don’t get why a £30 purchase would be split in the first place. Flexing larger purchases I have no issue with, it’s when it’s everything that it starts to feel like a solution to a problem that didn’t need to exist in the first place.
Not sure if this is a known issue or not but yesterday I was trying to use Monzo Flex in an H&M store and it said card issuer not accepted. Had to use my regular Monzo debit card, and although I know I can flex the transaction after the fact, thought it was still quite odd!
Is the interest you’d earn on the £20 you spent on a burger really be worth having to then keep track of outgoing repayments? Not even the full £20 as the first payment is upfront.
I know that there are all sorts of parameters that are used to assess what they feel is a suitable credit limit for a particular person. I do share your concerns over regulation, though.
