Klarna, Butter and Payl8r face tough new rules in Buy Now Pay Later crackdown
Plans to tighten regulation of buy-it-now-pay-later (BNPL) interest-free credit arrangements will “protect consumers”, the Treasury said – and were welcomed by MoneySavingExpert founder Martin Lewis. According to the proposals announced on Monday, lenders will be required to “conduct affordability checks” and “amend financial promotion rules to ensure that buy-now, pay-later advertisements are fair, clear and not misleading,” added the department.
Lenders offering the product will need to be approved by the Financial Conduct Authority (FCA) and borrowers will be able to lodge a complaint with the Financial Ombudsman Service (FOS), the Treasury said. Economic Secretary to the Treasury John Glen said: “Buy now, pay later can be a useful way of managing your finances, but we need to make sure people can take up new products and services with the right protections in place. .
“By maintaining buy now pay later to the high standards we expect from other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”
A government consultation on the regulation of the BNPL took place from October last year to January this year. A consultation on draft legislation will be released towards the end of this year, with the aim of tabling secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector, the Treasury added.
Other forms of interest-free short-term credit, including those used to pay for larger items or dental care, “will have to follow the same rules,” the department added. The rules “will apply to businesses that partner with a third-party lender to provide credit,” the Treasury said, adding that the government “is seeking further input from stakeholders to confirm whether they should also apply. online merchants who directly offer credit for the purchase of their own products.
Martin Lewis, founder of MoneySavingExpert.com (MSE) said: “Buy now, pay later, regulation is desperately needed, so my pleasure that this is finally happening is tempered by frustration at how long it’s taking. It’s been now almost two years since we have sounded the alarm over the explosive growth of BNPL and called for urgent regulation to ensure that proper controls are in place and that people can turn to the financial ombudsman if something goes wrong . .
“Buy now, pay later is often insidiously presented as just a payment option, or worse, a lifestyle choice. It’s not. It’s debt, with all the dangers of debt This perverts purchase decision-making, leaving many in a continuous loop Businesses make money from it because people are transacting more through BNPL than they would otherwise.
“Debt shouldn’t be something you slip into, it should be an informed, active and conscientious choice. While in some cases, BNPL can be a legitimately cheap way to spread the cost, amidst a cost-of-living crisis, people should always first ask themselves, “If I can’t afford to pay now, how will I afford to pay next month?”