Buy-Now-Pay-Later regulations are meant to protect millions

  • Millions of people will be protected through tighter regulation of interest-free Buy Now Pay-Later credit arrangements, under plans announced by the government today.
  • Lenders will be required to ensure loans are affordable and rules will be changed to ensure advertisements are fair, clear and not misleading.
  • The government will expand the rules to cover other forms of unsecured short-term credit that pose similar risks to consumers, such as those used for dental work.

Buy-Now Pay-Later credit agreements can be a helpful way to manage your finances, allowing people to spread the total cost of a purchase over time. However, people currently do not have the usual full range of borrower protections when taking out this type of loan and its popularity is growing rapidly, posing a potential risk of harm to consumers.

As part of plans set out by the government today, it confirmed that lenders will be required to carry out affordability checks, ensuring loans are affordable for consumers, and will change financial promotion rules to ensure that Buy-Now Pay-Later advertisements are fair, clear and not misleading. Lenders offering the product will need to be approved by the Financial Conduct Authority (FCA), and borrowers will also be able to lodge a complaint with the Financial Ombudsman Service (FOS).

Economic Secretary to the Treasury John Glen said:

“Buy-Now Pay-Later can be a useful way to manage your finances, but we need to make sure people can embrace new products and services with the proper protections in place.

“By maintaining Buy-Now Pay-Later to the high standards we expect from other loans and forms of credit, we are protecting consumers and supporting the safe growth of this innovative market in the UK.”

The response to today’s consultation sets out the government’s proposals for regulating the sector. Given its complexity, the government will publish a consultation on a draft law later this year. Following this, the government aims to table secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

The government has also confirmed that other forms of interest-free short-term credit, such as those used to pay for dental care or larger items like furniture, will have to follow the same rules announced today, as risks posed are similar and consumers should enjoy consistent protections against similar products. These rules will apply to businesses that partner with a third-party lender to provide credit, and the government is seeking further input from stakeholders to confirm whether they should also apply to online merchants that directly offer credit for buying their own products.

Today’s announcement is part of the government’s plan to grow the economy to tackle the cost of living. The Chancellor has provided £37billion in support to help, including providing Britain’s eight million most vulnerable families with at least £1,200 in direct payments this year – and giving to every household across the UK £400 to help pay their energy bills.

More information

  • Our response to our consultation on the regulation of “buy now, pay later” credit agreements confirmed the government’s intention to:
  • Amend the scope of the regulations to include BNPL and other currently exempt arrangements (which we refer to as Short Term Interest Free Credit (STIFC)) when provided by third party lenders;
  • Expand this scope to also capture the STIFC provided directly by merchants when offered online or remotely, although further stakeholder engagement is needed to fully understand the scale of the market for STIFC offered by merchants ;
  • The government will allow exemptions for specific agreements where there is a limited risk of potential harm to the consumer and where the regulation would otherwise negatively impact day-to-day business operations;
  • The Government’s approach to regulatory oversight of arrangements that will be regulated will tailor the application of the Consumer Credit Act 1974 (CCA) to those products and those elements of lending practice most related to potential harm for the consumer. BNPL users already benefit from consumer protection regulations. This includes agreements subject to:
    • advertising rules and guidance;
    • Fair Contract Terms Consumer Rights Act 2015; and
    • the Consumer Protection from Unfair Commercial Practices Regulations 2008 in relation to unfair commercial practices.
  • Consultation response

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