The UK government has made its latest move around buy now, pay later (BNPL), an increasingly popular payment method among British consumers.
HM Treasury has introduced new rules around BNPL, whilst a consultation has also been launched to secure greater protection for consumers. The changes will see the Financial Conduct Authority (FCA) apply affordability rules to the BNPL space.
Additional measures will include:
- A requirement that BNPL firms check that shoppers can afford repayments before a loan is offered to prevent people building up debt.
- Firms will be required to provide ‘clear, simple and accessible information’ about loan agreements to potential customers.
- Consumer Credit Act information disclosure rules will no longer apply. This is to allow the FCA to conduct its aforementioned consultation on the rules.
- Stronger consumer rights so BNPL users make the redress process quicker and easier. This will include applying Section 75 of the Consumer Credit Act, allowing consumers to claim refunds from lenders, and granting BNPL users access to the Financial Ombudsman Service.
Labour’s financial policy teams have had BNPL on their agenda since the government’s early days. Talks opened in late July between then-new Economic Secretary to the Treasury, Tulip Siddiq, and leaders within the BNPL sector.
The payment method, seen by many as a form of credit, has ballooned in popularity in the UK in recent years. Some estimates put the total value of BNPL purchases at £1.22bn in May 2024, representing 15.4% of total online spend. The extent of BNPL’s usage has prompted some concerns about indebtedness.
“Millions of people use Buy-Now, Pay-Later to manage their finances, but the previous government’s dither and delay left them unprotected,” Siddiq remarked.
“We promised to take action before the election and now we are delivering. Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”
The uptick in BNPL is not just a British phenomenon, with this trend also apparent in other European markets.
This growth has led to financial success for firms like Klarna, Europe’s leading BNPL provider, though the Swedish fintech has been vocal in calling for BNPL regulation in the UK, along with other BNPL providers like Clearpay – the latter voicing its opinion to Payment Expert earlier this year.
Responding to HM Treasury’s announcement, Michael Saadat, International Head of Public Policy at Clearpay, stated that the firm welcomes the new regulations, whilst ‘money saving expert’ personality Martin Lewis praised the move on X (Twitter).
“It is encouraging that HM Treasury has listened to industry feedback and evolved the previous framework to ensure a more proportionate approach to regulation,” Saadat continued.
“We have always called for fit-for-purpose regulation that prioritises customer protection, delivers much-needed innovation in consumer credit and that sets high industry standards across the board.”
“We will continue to support the Government and the FCA to deliver fit-for-purpose regulation that ensures consumers are protected in a way that supports the UK’s thriving FinTech sector.”
It is worth noting that the Labour government has not opted for the approach of classifying BNPL as a form of credit, as the US Consumer Financial Protection Bureau (CFPB) did back in May.
Whilst Klarna has publicly called for BNPL regulation in the UK, it was critical of the CFPB’s decision, asserting there are distinct differences between BNPL and credit cards.
