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UK: Regulating Buy-Now-Pay-Later will protect million consumers

By Puja Sharma

June 21, 2022

  • B2B BNPL
  • banks in UK
  • BNPL
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BNPL in UK

As new BNPL regulation means that providers will be required to carry out affordability checks on consumers and have FCA approval.

With Buy-Now Pay-Later credit agreements, customers can spread the cost of an item over time, thus making it easier to manage their finances. Due to the lack of borrower protections when consumers take out this type of loan, this may place consumers at risk.

It has been confirmed today that lenders will have to undertake affordability checks for loans to ensure they are affordable for consumers and that financial promotion rules will be modified so that Buy-Now Pay-Later advertisements are fair, clear, and not misleading. The Financial Conduct Authority (FCA) must approve lenders offering the product, and borrowers can file a complaint with the Financial Ombudsman Service (FOS) as well.

Mike Peplow, CEO at Paynetics, the regulated e-money services provider, commented on the changes“Regulation is an appropriate development for the BNPL space, bringing the product into the mainstream whilst making sure we have positive outcomes for consumers.”

Although BNPL often doesn’t charge an interest rate to the consumer, there are penalties and repercussions for late or non-payment. Simply providing a link to terms and conditions on a website, or providing a page of small print in an App, is not going to be sufficient to convince the regulator that firms have sufficiently communicated the implications of taking on a BNPL product. The new affordability checks coming into play today will protect consumers from spending beyond their means.

According to John Glen, the Secretary of the Treasury for Economics: “We need to ensure that people can embrace new products and services with the right protections in place for Buy-Now Pay-Later. We are protecting consumers and fostering the growth of the innovative market in the UK by holding Buy-Now Pay-Later to the high standards we expect of other credit products and loans.”

Given its complexity, the government will publish a consultation on draft legislation toward the end of this year. Following this, the government aims to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

Government officials have also confirmed that other short-term interest-free credit products, like those used to pay for dental work or larger items like furniture, will also need to follow the same rules announced today because the risks are similar and consumers will receive consistent protections. As a result of these rules, businesses that partner with third-party lenders to provide credit will be subject to the rules, and the government is seeking input from stakeholder groups regarding whether the rules should also apply to online merchants who directly extend credit.

Regulation is a vital next step for BNPL and I believe these changes will help the consumer while continuing to champion the development of this innovative sector.

Key Highlights

  • Millions of people will be protected through strengthening regulation of interest-free Buy-Now Pay-Later credit agreements, under plans announced by the government today.
  • Lenders will be required to ensure loans are affordable and rules will be amended to ensure advertisements are fair, clear and not misleading.
  • Government will expand rules to cover other forms of unsecured short-term credit that pose similar risks to consumers, such as those used for dentistry work.

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