UK Government consults on new rules for buy now, pay later products

Editorial

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The Government has launched a consultation on its proposals, which will bring companies under the supervision of the Financial Conduct Authority (FCA) and apply the Consumer Credit Act, ensuring users receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise.

Economic Secretary to the Treasury Tulip Siddiq says: “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 new rules will allow the FCA to demand checks on affordability so that BNPL firms will have to ensure that shoppers are able to afford repayments before offering a loan.

Companies will also need to provide “clear, simple and accessible information” about loan agreements in advance so that shoppers can make fully informed decisions and understand the risks associated with late repayments.

In a fig leaf to the industry, Consumer Credit Act information disclosure rules will be disapplied so that the FCA can consult on bespoke rules that ensure users are given this information in a way that is tailored to the online setting in which BNPL products are generally used.

Companies had argued that an initial ‘credit agreement’ would have required a static form for consumers to sign in every credit application and every BNPL transaction, significantly slowing down online purchases.

Michael Saadat, international head of public policy at Clearpay says: “We welcome today’s update from City and FinTech Minister, Tulip Siddiq, on BNPL regulation. It is encouraging that HM Treasury has listened to industry feedback and evolved the previous framework to ensure a more proportionate approach to regulation.”

Buy now, pay later users will also be given stronger rights if issues arise with products they purchase, making it quicker and easier to get redress. This includes applying Section 75 of the Consumer Credit Act, which allows consumers to claim refunds from their lender, and access to the Financial Ombudsman Service to make complaints.

Rocio Concha, Which? director of policy and advocacy, says: “Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers. We are keen to see legislation quickly passed.”

The consultation will close on 29 November. Final legislation is expected to be laid in Parliament in early 2025. Once the legislation is laid, the FCA will finalise the rules so they can take effect in 2026.