MILLIONS of households will be impacted by new buy now, pay later (BNPL) rules aimed to protect consumers.
The Treasury has laid out further plans to tighten up regulations after first announcing it in February 2021.
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The proposed changes aim to reduce the risk of financial harm for around 10million customers.
The Treasury has proposed similar rules previously, but people are still waiting for them to come into effect.
As a next step, an eight-week consultation is launching tomorrow on how firms can implement the rules.
The rules that are being proposed will mean:
- BNPL providers need to be approved by the Financial Conduct Authority (FCA)
- Lenders must ensure loans are affordable
- Lenders must give consumers key information about their loans
- Consumers will be able to complain to the Financial Ombudsman
- Firms will have to put details of repayments clearly and upfront on products
The extra rules proposed today also mean customers will face “affordability checks” and a form of “soft” credit check.
Unlike applications for credit cards and mortgages, this isn’t like a “hard” credit check and won’t affect credit scores.
The next stage after the new consultation will be legislation which is where the rules will be put into practice.
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It isn’t clear how long this could take – it’s dependent on Parliamentary time as it needs new laws.
However, it’s expected to be this year.
Andrew Griffith, economic secretary to the Treasury, said: “People should be able to access affordable credit, but with clear protections in place.
“That is why these proposed regulations are so important.”
Buy now, pay later (BNPL) 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 including Asos, H&M and more.
Payment is made in instalments over an agreed period of time, usually 30 days.
It can be handy when used responsibly, but concerns have been raised about the amount of debt that people are racking up in this way.
Stella Creasy MP said: “Having finally agreed to bring the Ombudsman in, the government must expedite the necessary regulation because millions more people are now in debt to these companies.
“We cannot let these predatory BNPL firms have another year to profit off of people struggling with too much month at the end of their money during the cost of living crisis.”
BNPL services are currently not regulated by the FCA.
In June last year, however, it said lenders would be required to carry out checks to make sure loans are affordable for consumers.
It also said the way BNPL schemes are advertised would change to ensure they are fair, clear and not misleading.
Last year, lenders also began sharing BNPL purchases with credit reference agencies in anticipation of the regulation.
Laybuy works with credit reference agencies and conducts credit checks on all customers.
It shares data with Experian and Credit Kudos.
Klarna began reporting UK consumer purchases paid on time, late payments and unpaid purchases for Pay in 30 and Pay in 3 orders made on or after June 1 to both Experian and TransUnion.
Clearpay does not currently report BNPL transaction data to any credit reference agencies.
Whether your BNPL purchases appear on your credit report will depend on whether the company you made the purchase with is sharing information with credit reference agencies.
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 behind on payments.
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 do 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.
How to cut the cost of your debt
Being in large amounts of debt can be really worrying, but it’s important not to bury your head in the sand.
If you’ve got credit card debts, aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker.
If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card.
If you’ve got several debts and you can’t afford to pay them all, it’s important to prioritise them.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay.
If you’re struggling to pay your debts, it’s important you get advice as soon as possible before they build up even further.
Groups like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
