LONDON, 14 February – The UK on Tuesday proposed legislation to regulate “Buy Now Pay Later” (BNPL), saying that without thorough checks on affordability, the sector could be damaging to consumers. The sector has almost quadrupled during the pandemic to £2.7 billion ($3.28 billion) by 2020.
As the UK faces a cost of living crisis, consumer campaigners fear that people on low incomes could end up in debt if they use BNPLs to buy food and pay energy bills.
On Tuesday, the Treasury launched a public consultation on legislation to regulate BNPLs. This would give the Financial Conduct Authority (FCA) the power to license operators and their activities.
The move has already been announced for the end of 2022.
“People should be able to access affordable credit, but with clear protections,” said Andrew Griffith, Financial Services Minister, in a statement released by the Treasury.
BNPL contracts currently rely on minimal credit checks, with lenders not required to provide key information to borrowers, and some people could end up borrowing more money than they can afford to repay, the department said.
Consumers will also be given the new right to complain to the Financial Ombudsman Service, the department said. Jonathan Herbst, a lawyer at Norton Rose Fulbright, said it was a fundamental change in approach for the sector.
Last February, the FCA ordered BNPL, which operates Clearpay, Klarna, Laybuy and Openpay, to amend their contracts after finding potential harm to customers. Pending new legislation, it had to invoke consumer rights.
Once the FCA has its new powers, it will comment on detailed rules for the sector, such as mandatory affordability testing, operator licensing and fair marketing.