Buy now, pay later finally regulated? The government is launching a consultation after its meteoric rise
The government will launch a consultation on buy-now-pay-later after a rapid increase in use of the unregulated product.
BNPL allows customers to spread the purchase cost over a few months, usually in three to six installments.
Companies like Klarna have been at the forefront of bringing the product to the masses, but the sector has come under fire from some experts for encouraging vulnerable customers to make payments they cannot afford.
BNPL payments will come under the supervision of the financial watchdog
While some banks and lenders offering BNPL are regulated, many non-bank leaders are not and many customers are unaware that the payment is a form of loan.
The government said it has launched a consultation to bring BNPL companies under the supervision of the Financial Conduct Authority (FCA) and apply consumer credit.
The changes are likely to include providing clear information so people can decide whether a product is right for them.
It is also likely to include a requirement to carry out affordability and credit checks before lending money.
BNPL customers will also have stronger rights if they have problems with products after they have purchased them, including the application of Section 75 of the Consumer Credit Act.
This allows customers to claim refunds from their lender and access the Financial Ombudsman Service.
The FCA welcomed the consultation, following long-standing calls for the products to be brought under its jurisdiction, following the Woolard Review in 2021.
Sebastian Siemiatkowski, co-founder of Klarna, said: “Congratulations to Tulip Siddiq and the government for acting quickly. They have been working with industry and consumer groups long before they came to power.
“We look forward to continuing that work to implement proportionate rules that protect consumers while promoting growth.”
Michael Saadat, from Clearplay, said: ‘We welcome today’s update from Tulip Siddiq on the BNPL regulations.
‘It is encouraging that HM Treasury has listened to industry feedback and developed the previous framework to ensure a more proportionate approach to regulation.
“We have always called for appropriate regulation that prioritizes customer protection, delivers much-needed innovation in consumer credit and sets high standards for the sector across the board.”
Steve Vaid, CEO of the Money Advice Trust, the charity that runs National Debtline, said: ‘The announcement is an important milestone in the introduction of BNPL regulations, something we have been pushing for for a long time.
‘Regulation will increase protection when using these products, and we need to see the Government and the FCA act quickly to achieve this.’
The FCA said it expected to take on regulation of the sector 12 months after the legislation was passed.
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