Buy-now pay-later (BNPL) firms today welcomed the UK government’s long-awaited plans to regulate the sector amid concerns that more people are turning to such services as the cost of living rises.
Under plans announced today, the government said that BNPL firms – which provide shoppers with short-term interest-free credit to delay paying for goods – will be required to carry out checks to make sure consumers can afford such loans.
BNPL companies will also need to be approved by the Financial Conduct Authority (FCA), and borrowers will be able to file a complaint about BNPL firms to the Financial Ombudsman Service.
The government said it will also amend financial promotion rules to ensure BNPL advertisements are fair, clear, and not misleading.
“By holding Buy-Now Pay-Later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK,” John Glen, Economic Secretary to the Treasury, said.
In response to the Treasury announcement, an FCA spokesperson said: “It is vital the law, which sets our remit, adapts as the market innovates, so new products and services develop in a way that benefits consumers and that action can be taken to prevent harm.”
BNPL firms broadly welcomed the government’s plans to regulate the sector.
“Consumers will be best served by products that have been designed with strong consumer safeguards, including pausing accounts at the first sign of non-repayment to ensure consumers can never revolve in debt. This cannot be said of traditional credit products with high interest rates,” a spokesperson for BNPL firm Clearpay said in a statement.
Gary Rohloff, co-founder of rival firm Laybuy, said: “We have always been in favour of a proportionate model of regulation, one that reflects the low risk of BNPL, supports small e-commerce businesses and sets high standards across the industry.”
“Naturally, we need to have a look at the consultation response in full, but we’re supportive of the government’s approach and we look forward to working closely with the FCA on the next steps,” said Rohloff in an emailed statement.
The plans, outlined in a Treasury response to a consultation on regulating the sector, come following calls to bring in proper consumer protections over concerns that more people are using BNPL services to pay for daily essentials as the increasing cost of living starts to bite.
One in 10 people have used BNPL schemes to cover essentials, while six per cent said they have bought groceries using BNPL, according to research published by Hargreaves Lansdown last month.
Martin Lewis, founder of MoneySavingExpert.com, also welcomed the proposed regulations, but was critical of the government’s slow progress on the issue.
The government said it will publish a consultation on draft legislation toward the end of this year, and aims to present secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.
“Those protections still won’t be in place for the financially bleak winter coming,” Lewis warned.
Citizens Advice also urged the government to implement the changes more quickly.
“Every day spent waiting for regulation is yet another day that shoppers are left unprotected and ill informed.” Clare Moriarty, Chief Executive of Citizens Advice, said in an emailed statement.
“The government’s proposed rules will provide vital protection to many, but it must turbo-charge these plans,” she added.