The UK government has announced plans to tighten rules for buy now, pay later services and strengthen protections for short-term credit users.
Monday’s announcement was in response to a consultation that ended in January, followed by Concerns about the model As the cost of living crisis deepens, consumer protection.
The government proposal would apply to other forms of short-term debt, requiring lenders to conduct checks on consumers to ensure they can afford to take out loans, and to be approved by the Financial Conduct Authority.
The plan will also amend financial promotion rules to ensure advertising is not misleading and allow consumers to lodge complaints with the Financial Ombudsman Service.
The move has raised concerns about the BNPL model and whether users understand that they are taking on debt, and whether suppliers ensure people have the ability to pay for the products they buy using the service.
“Buy now, pay later can be a useful way to manage your finances, but we need to ensure that new products and services are embraced by people and protected in place,” said Treasury Economics Secretary John Glenn.
“By keeping buy now pay later at the high standards we expect from other forms of lending and credit, we are protecting consumers and promoting the safe growth of this innovative market in the UK.”
BNPL services, which allow users to pay for purchases in installments, are beneficiaries of the Covid-19 pandemic’s e-commerce boom. The researchers estimate that the UK BNPL market will be worth £5.7 billion in 2021, more than double the 2020 figure calculated by the Financial Conduct Authority.
The lack of regulation means that approaches taken by BNPL suppliers vary.some players have started Voluntary provision of information To UK credit agencies, Klarna started doing so in June.
The government said it expects to issue an advisory opinion on the draft legislation by the end of the year and plans to have secondary legislation in place by mid-2023. After that, the FCA will consult on the industry’s rules.
The announcement is in line with the government’s commitment on Thursday Reforming Consumer Credit Lawsof which overseas personal loans include BNPL products.
Martin Lewis, founder of Money Saving Expert, said he welcomed the consultation but regretted that legislation would not be in place “for the coming winter of fiscal depression”.
“Buy now, pay later is often marketed covertly as an easy payment method, or worse, a lifestyle choice. It’s not. It’s a debt with all the dangers of debt,” he said. Say.
“It distorts buying decisions and puts many people in an ongoing ‘ow-ow-ow’ cycle. Companies make money from it because people are transacting more through BNPL than they would otherwise.”
As the economic outlook deteriorates, the industry is now facing the triple threat of falling discretionary spending, increased likelihood of customer defaults and rising interest rates. Big tech companies such as banks and Apple are also increasingly entering the crowded BNPL market.
Klarna, valued at $46 billion last June, became the most valuable private fintech company in Europe. trying to raise new cash Less than half, according to people familiar with the matter.
Shares of U.S. BNPL operator, Amazon and Walmart partner Affirm have fallen 80 percent this year.
Additional reporting by Claire Barrett