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‘Buy now, pay later’ crackdown in the making

The finance regulator has proposed bringing ‘buy now, pay later’ providers within its regulatory remit

The UK government is set to clamp down on “buy now, pay later” (BNPL) providers with a consultation on draft legislation that will bring them into the remit of the Financial Conduct Authority (FCA).

In response to concerns over consumers’ financial welfare, the government has proposed to regulate, previously unregulated, BNPL providers.

The consultation, which runs until 11 April, wants the views of stakeholders on its proposals.

BNPL products are offered by an increasing number of fintech providers – Klarna being one of the biggest – giving consumers the opportunity to spread the payments of a huge range of purchases.

Take-up of BNPL has exploded, accounting for 12% of UK online spending last month, according to Adobe Analytics.

Andrew Griffith, economic secretary to HM 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.”

The increased popularity of fintech, which offers convenience and easier access to credit, is behind this huge rise, alongside the current cost-of-living crisis, which has seen more people turn to credit to help them meet everyday costs.

“People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important”
Andrew Griffith, HM Treasury

But in January 2022, consumer rights group Which? called for stronger protection for consumers using BNPL products. It said there was a need for stronger safeguards to ensure that consumers understood the risks before clicking to accept products.

In February 2022, the FCA used its influence to secure changes to the contract terms of BNPL firms, including refunding some customers who were unfairly charged. The FCA does not regulate BNPL, so it used the Consumer Rights Act to assess the contracts amid fears being raised for consumers.

It was concerned there was a potential risk of harm to consumers because of the way some of the firms’ terms were drafted. A review of the market carried out by the FCA found that the use of BNPL products nearly quadrupled to £2.7bn in 2020.

BNPL firms agreed with the regulator to make the terms on issues such as contract cancellations and continuous payment authorities fairer and easier to understand.

Regulation by the FCA would bring many fintechs in line with more traditional lenders, which operate under strict rules.

Research from Which? last year found that many consumers do not see BNPL as credit and therefore leave themselves open to problems in the future. Having interviewed 30 BNPL users, Which? was concerned that they did not fully understand the risks of choosing a “pay later” option at the checkout.

“Many of the BNPL users interviewed by Which? did not think of BNPL schemes as a form of credit, meaning they could unwittingly be exposing themselves to serious risks of missing repayments, such as late fees, marked credit reports or referral to a debt collector,” it said.

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