SHOPPERS are at risk of being left out of pocket over delayed plans to regulate the Buy Now, Pay Later (BNPL) sector.
The government has postponed plans to regulate BNPL products following pressure from providers to water down its proposals, The Sun understands.
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The Treasury was meant to publish a response to its consultation last summer, but has put it off while it determines whether it would cause firms to axe their products in the UK.
Nikki Worden, partner at law firm Osborne Clarke, which works with several major BNPL firms, told The Sun many providers had fed back to the government that they may leave the UK following regulation.
She explained this is because the change would impact firms’ profits and some businesses would risk going bust before they’d had the chance to get authorised and adapt to the new rules.
“Firms might choose to exit the market as they start to recognise just how expensive it is to run a regulated lending business,” she said.
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“We have discussed these risks widely and we know that they were fed back to government by many in the market in response to their consultation.”
Sources say this is a major concern for the government as it doesn’t want to restrict the number of BNPL products on offer during a cost of living crisis.
It is now expected that regulation will not be implemented before the next general election as the policy is “not an election winner” and the recommended changes to its plans are too complicated to prioritise, one insider from a top BNPL firm told The Sun.
Ms Worden added that she’d expect the process of introducing regulation to take “at least a year”, taking it past the next election.
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Stella Creasy, Labour MP for Walthamstow, said Chancellor Jeremy Hunt told her regulation of the sector would be included in the Financial Services and Markets Bill 2023 – a huge piece of legislation outlining plans for regulating financial services in the UK.
But there was no mention of the plans anywhere in the final legislation, published last June.
It is understood BNPL firms were then told they should have a response by the end of 2023.
But a month into 2024, they have still not heard any update from the government.
This is despite providers and the city watchdog, The FCA, which would be responsible for regulating the sector, all pushing for some form of regulation to be introduced more quickly.
The delay is bad news for consumers as the lack of regulation around these products means firms don’t have to follow the same rules as major lenders and customers aren’t protected if things go wrong.
Ms Creasy told The Sun: “If ministers are concerned that Buy Now, Pay Later companies won’t be able to turn a profit if we regulate them, that should set alarm bells ringing that the public are being treated badly or misled.
“Rather than seeing this as a pretext to further delay of the introduction of these regulations, it should be spurring ministers on.
“The fact this is not happening makes it clear they are on the side of these legal loan sharks rather than sticking up for British consumers.”
What is Buy Now, Pay Later?
BNPL products allow consumers to defer or spread the cost of purchases over a set time frame interest-free.
For example, Klarna, one of the major players in the market, offers a “Pay in Three” product, where customers can pay for a purchase in three interest-free monthly payments.
While the products don’t charge interest, users may incur fees for late payments.
Millions of people use these payment plans every year. But because BNPL products aren’t regulated, users aren’t covered by the same protections as other credit agreements.
Banks, for example, must ensure they aren’t lending more money to customers than they can afford by reviewing their credit history and financial situation.
But BNPL providers aren’t required to carry out such stringent checks, although some firms like Klarna have introduced checks voluntarily.
Consumers who deal with regulated financial firms are also protected by the Financial Ombudsman Service (FOS), which settles complaints between companies and customers.
However, BNPL users can’t currently take their claims to the FOS if they think they’ve been treated unfairly.
The Sun has learned one of the biggest BNPL firms has asked the FOS numerous times if it can be a voluntary member, but has been refused on the basis that it’s due to be regulated.
This means millions of users have lost more than a year of FOS protection due to the ongoing delays by the government.
Ms Creasy, who has been lobbying the Treasury to regulate the BNPL sector for years, added: “After twelve months of dragging their feet, it is clear ministers have no interest in protecting the public from being exploited, even as millions more people are now in debt to these firms.”
What are the concerns over regulation?
An insider at a top BNPL firm said firms’ feedback “across the board” to the government’s consultation last year was that the regulations would be too heavy-handed on firms while failing to really benefit consumers.
One of the main criticisms of the original proposals was that BNPL firms would be burdened by regulation while shops which offer their own BNPL products would continue to be exempt from the rules.
Another top criticism put forward by BNPL firms was that regulation might put off consumers as it would appear over-complicated and would instead push them towards higher-risk credit.
Ms Worden, from Osborne Clarke, said: “There could be rapid drop off in usage of BNPL as the product would become more difficult for consumers to use quickly at point of sale.”
A spokesperson for HM Treasury said: “When used appropriately, BNPL can be a useful, interest-free way for consumers to manage their finances.
“We must ensure that regulation of these products is proportionate to ensure borrowers are protected without unduly restricting access.
“We will publish a response to our consultation once it is finalised.”
A spokesperson for the FCA added: “BNPL can provide valuable benefits, but consumers also need the right information and protections – particularly if they’re struggling financially.
“It’s up to the government to decide which products are regulated, but we’re ready to regulate the BNPL sector once a final decision is made.”
How can I use BNPL without losing out?
When used correctly, BNPL plans can be a useful way of managing your finances.
The products work in a similar way to other types of credit. The main difference is that they don’t charge interest.
You usually have to make payments by set deadlines over a period of time.
If you meet these repayment deadlines, you shouldn’t be charged any extra fees.
However, research has shown many Brits have become over-reliant on the products and are struggling to keep up with repayments.
Research by Citizens Advice found last year that around one in five BNPL users had missed or made a late payment in the last 12 months, while a third of users borrowed money to repay their instalments.
The Sun revealed last year how one user built up £1,500 of debt when she fell behind on repayments after spending £475 on clothes using BNPL.
Tabby Smith, from Tyne and Wear, said it left her overwhelmed and suffering panic attacks, and she was only able to clear the debt with a loan from her mum.
Laura Suter, director of personal finance at broker AJ Bell, said the tricky aspect of BNPL is that you can end up juggling lots of different payment dates with different providers, and if you miss a payment you’ll end up with late fees and a bad credit score.
“Make sure you put a note in your calendar of when you’re due to make a payment to check you have enough money in your account to pay it – and that the payment goes through,” she said.
“And BNPL is still debt – so don’t spend money you can’t afford to repay. If you wouldn’t put it on a credit card, don’t use BNPL.
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“Also, don’t assume that BNPL is the cheapest and best option for you,” she added.
“Weigh it up against a 0% credit card or 0% overdraft and see which would work best.”
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