Millions of shoppers to be protected by new Buy-Now, Pay-Later rules

Millions of shoppers are set to be protected by new rules for Buy-Now, Pay-Later products.  

Buy-Now, Pay-Later products have become increasingly popular in recent years as they allow people to spread the cost of purchases over time, but users currently do not have access to a range of key protections provided by other consumer credit products.  

The Government has today launched a consultation on proposals to fix this by bringing Buy-Now, Pay-Later companies under the supervision of the Financial Conduct Authority (FCA) and applying the Consumer Credit Act, ensuring users receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise.  

Economic Secretary to the Treasury Tulip Siddiq said:     

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 the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.

The new rules will allow the FCA to apply rules on affordability – meaning that Buy-Now, Pay-Later companies will have to check that shoppers are able to afford repayments before offering a loan, which will help to prevent people building up unmanageable debt.

Companies will also need to provide clear, simple and accessible information about loan agreements in advance so that shoppers can make fully informed decisions and understand the risks associated with late repayments. Consumer Credit Act information disclosure rules will be disapplied so that the FCA can consult on bespoke rules that ensure users are given this information in a way that is tailored to the online setting in which Buy-Now, Pay-Later products are generally used.    

Buy-Now, Pay-Later users will be given stronger rights if issues arise with products they purchase, making it quicker and easier to get redress. This includes applying Section 75 of the Consumer Credit Act, which allows consumers to claim refunds from their lender, and access to the Financial Ombudsman Service to make complaints. 

Rocio Concha, Which? Director of Policy and Advocacy, said:

Which? has been a leading voice calling for the regulation of Buy Now Pay Later for years so 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, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers. 

We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.

Sebastian Siemiatkowski, Co founder and CEO of Klarna, said:

Congratulations to Tulip Siddiq and the government on moving quickly! They have been working with the industry and consumer groups long before coming into office. We’re looking forward to carrying on that work to put proportionate rules in place that protect consumers while fostering growth.

Michael Saadat, International Head of Public Policy at Clearpay said:

We welcome today’s update from City and FinTech Minister, Tulip Siddiq, on BNPL regulation. It is encouraging that HM Treasury has listened to industry feedback and evolved the previous framework to ensure a more proportionate approach to regulation. We have always called for fit-for-purpose regulation that prioritises customer protection, delivers much-needed innovation in consumer credit and that sets high industry standards across the board.

We will continue to support the Government and the FCA to deliver fit-for-purpose regulation that ensures consumers are protected in a way that supports the UK’s thriving FinTech sector.

Chris Woolard, Author of the 2021 Woolard Review, which looked at change and innovation in the unsecured credit market, said:  

Today marks a significant milestone for consumer-focused financial regulation. The proposed package of regulation would implement the recommendations of the Review and mean millions of people up and down the UK will benefit from stronger financial protection as they borrow using BNPL, especially the most vulnerable in society. The incoming regulation will also provide long-term certainty and standards for the market.

The consultation will be conducted quickly – closing on 29 November – to reflect the urgent need for action to protect consumers.  

Final legislation is expected to be laid in Parliament in early 2025. Once the legislation is laid, the FCA will finalise the rules so they can take effect in 2026 – bringing clarity to the sector after years of uncertainty about how it will be regulated.  

This follows the Prime Minister saying he would remove regulation that needlessly holds back investment and growth. Today’s announcement brings in much needed regulation that stops people spiralling into debt.

Justin Basini, Co-Founder and CEO of The ClearScore Group said:  

We welcome this consultation to bring Buy-Now, Pay-Later borrowers under the same protections and creditworthiness assessments as other mainstream financial products such as credit cards and loans.  

It is a sensible step in ensuring that this new, important form of credit continues to provide much-needed flexibility for consumers while also managing any risks.