New regulations are set to provide essential protections for millions of Buy-Now, Pay-Later (BNPL) users, ensuring that they have the same safeguards as those using other forms of credit. The Government has announced plans to bring BNPL companies under the oversight of the Financial Conduct Authority (FCA), which will enforce new rules on lending affordability, thus preventing users from falling into unmanageable debt.
As BNPL products have surged in popularity, allowing consumers to spread payments for purchases, many users have remained vulnerable due to a lack of protections typically afforded to consumers using credit cards or loans. The proposed regulations aim to rectify this by applying the Consumer Credit Act to BNPL services, offering clearer information, better rights, and safeguards against unaffordable borrowing.
Economic Secretary to the Treasury, Tulip Siddiq, highlighted the importance of these new measures, stating: “Millions of people use Buy-Now, Pay-Later to manage their finances, but the previous government’s dither and delay left them unprotected. We promised to take action before the election, and now we are delivering. Our approach will give shoppers access to key protections while providing the sector with the certainty it needs to innovate and grow.”
The new rules will require BNPL providers to verify that customers can afford their repayments before loans are granted, helping to avoid the pitfalls of excessive debt accumulation. Additionally, these companies will need to present clear and accessible information regarding loan agreements in advance, allowing shoppers to make informed decisions about their purchases and understand the risks associated with late payments.
Importantly, the new regulations will strengthen the rights of BNPL users when issues arise with their purchases. For instance, they will be able to access the Financial Ombudsman Service for complaints and benefit from Section 75 of the Consumer Credit Act, which allows consumers to claim refunds from their lenders.
Consumer advocacy group Which? has long championed the regulation of BNPL products. Rocio Concha, Director of Policy and Advocacy, stated, “It’s positive that new rules are coming in that should provide much-needed protections for users of these products. Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees.”
Industry leaders have welcomed the proposed regulations as well. Sebastian Siemiatkowski, Co-founder and CEO of Klarna, praised the government’s swift action and its collaboration with industry and consumer groups. Michael Saadat, International Head of Public Policy at Clearpay, expressed support for a regulatory framework that prioritises customer protection while fostering innovation in the FinTech sector.
Chris Woolard, author of the 2021 Woolard Review, emphasised the significance of this regulatory development, noting that it would enhance financial protections for vulnerable consumers in the BNPL market. The consultation on the new regulations will close on 29 November, with final legislation expected to be laid in Parliament in early 2025. Once the rules are finalised by the FCA, they will come into effect in 2026, providing much-needed clarity and certainty in the sector after years of uncertainty.
As Prime Minister has previously stated his intention to remove unnecessary regulations that stifle investment, these new rules represent a crucial step in safeguarding consumers from spiralling debt.
