BNPL firms face new hurdles

The UK government has revealed plans to regulate “buy-now pay-later” firms and protect up to 10 million people from being “exposed to financial harm”. The Treasury stated that lenders will have to do better affordability checks on borrowers and offer clearer information on loans, and customers will also be able to take complaints about companies to the Financial Ombudsman. Although these products are interest-free, they remain largely unregulated, raising concerns about people falling into debt. Users are also not entitled to any breathing space when they cannot afford to repay, or compensation if things go wrong.

The government promised to regulate the sector in 2021 but has been “painfully slow” in bringing legislation forward, according to consumer champion Martin Lewis. The Financial Conduct Authority (FCA) previously told the four largest buy-now pay-later operators to change their contracts after identifying potential harm to customers but had to use consumer rights law in the absence of specific legislation. Under the new plans, the FCA would be given powers to clamp down on firms who break the rules, including banning them from further lending. Firms would also have to be licensed by the FCA and face tougher rules when advertising their products.

The boss of British buy-now pay-later firm, Zilch, stated that regulation is long overdue, and customers need protection and the ability to complain to the Ombudsman. He said short-term lenders should conduct an affordability and credit check on customers and report the activity so borrowers cannot simply get another loan elsewhere and get further into debt.

The Treasury published the plans with an 11 April deadline for submissions, and the proposals are expected to become law before the end of 2023. Britain’s buy-now pay-later sector nearly quadrupled in size during the pandemic in 2020 to £2.7bn. Recent research showed that people of all ages were turning to the sector as they struggled with the cost of living, showing the need for urgent regulation. Consumer group Which? called for the regulation to be introduced as soon as possible to protect consumers and warn them about the risks of using buy-now pay-later schemes.