MILLIONS of shoppers could be affected by new buy now, pay later regulations put forward by the Government.
The Treasury has laid out plans to tighten up rules around BNPL in a bid to protect consumers.
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The proposed rules will include:
- BNPL providers need to be approved by the regulator
- Lenders must ensure loans are affordable
- Advertisements must be fair, clear and not misleading
- Other short-term interest-free credit to be included
- Consumers to be able to complain to the Ombudsman
It comes after Amazon announced it would be starting its own BNPL service, and newbie bank Zopa launched a buy now, pay later product earlier this month.
Buy now, pay later is a type of borrowing whereby you make a purchase but delay paying for it.
BNPL providers like Klarna, Clearpay and Laybuy, let customers pay for their shopping in interest-free monthly instalments to spread the cost.
It’s widely available at many online retailers now including Asos, H&M and more.
Payment is made in instalments over an agreed period of time, usually 30 days.
But concerns have been raised about the amount of debt that people are racking up in this way.
An estimated 8 million adults in the UK owe money on BNPL, according to reference agency Credit Karma.
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An average of £538 per person is owed on BNPL, with total debt standing at a hefty £4billion.
Ciizens Advice recently warned that nearly two in five BNPL shoppers have borrowed money in order to meet their repayments.
More protection is needed
The Treasury has today raised concerns that buy now, pay later doesn’t offer the same protections to shoppers as other forms of borrowing.
For example, when you buy an item on a standard credit card, you are protected by Section 75 of the Consumer Credit Act and also by chargeback, both of which can help you get your money back if you don’t receive your item or it is faulty.
The Government has said that BNPL lenders will be required to carry out affordability checks to ensure loans are affordable for customers.
It also wants to overhaul promotion rules to ensure BNPL adverts are “fair, clear and not misleading”.
It said lenders offering BNPL services will need to be approved by the regulator, and customers will be able to take complaints to the Ombudsman.
John Glen, economic secretary to the Treasury, said: “Buy now pay later can be a helpful way to manage you finances, but we need to ensure that people can embrace new products and services with the appropriate protections in place.
“By holding BNPL to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”
What happens next?
The Government will publish a consultation on draft legislation later this year, and will lay out its plans by mid-2023.
At this point the Financial Conduct Authority, the regulator, will consult on rules for the sector.
The Treasury said other short-term interest-free credit would also be covered by the rules – this includes loans to pay for dental work or furniture, for example.
But there have been some grumbles that the government is not moving fast enough.
Martin Lewis said regulation was “desperately need” but he was frustrated at how long it was taking.
He said: “It’s now nearly two years since we raised the alarm about BNPL’s explosive growth and called for urgent regulation, yet those protections still won’t be in place for the financially bleak winter coming.”
Dame Clare Moriarty, chief executive of Citizens Advice, said:
Every day spent waiting for regulation is yet another day that shoppers are left unprotected and ill informed. We’ve seen a shopper threatened with debt collectors after splitting the payment of a t-shirt and, more recently, a worrying two in five BNPL customers borrowing money to make repayments.
“The government’s proposed rules will provide vital protection to many, but it must turbo-charge these plans.”
Should I use BNPL?
The UK’s BNPL market is worth £6 billion and 20million people already use this way of shopping.
And like any other form of credit, BNPL is safe to use as long as you do so responsibly.
That means clearing your balance in full and not falling into arrears.
Debt should always be a last resort as a way to pay for anything, and you should never take on more than you can afford to repay.
Concerns around BNPL have centred around the credit checks that companies undertake before offering you the loans.
With a standard loan or credit card, lenders to a “hard check”, which shows on your credit history so other companies can see what credit you’ve applied for.
BNPL firms have typically only carried out “soft checks” which are not as stringent, and mean shoppers could rack up loans with a number of providers, which could mean their borrowing gets out of control.
This month, some BNPL firms started to report transactions on your credit file.
Citizens Advice is among the organisations which have been calling for more regulation on the industry.
Millie Harris, debt adviser at Citizens Advice East Devon, said:
“What scares me most is how easily people can slip into using Buy Now Pay Later.
“They come to rely on it much more quickly than other forms of credit. It’s just a few clicks at a checkout.
“Too often that means people don’t realise how serious it is; that it is credit and there are consequences if they don’t repay it.”
If you are worried about debt, speak to your lenders as soon as possible – they may be able to help you come up with a more affordable repayment plan.
Debt advice charities such as StepChange, Citizens Advice or National Debtline may be able to offer you guidance.
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