Crackdown on buy now, pay later schemes to protect 10 million shoppers

A crackdown on unregulated buy now, pay later (BNPL) schemes is set to protect around 10 million Britons from borrowing what they cannot afford to pay back, ministers said.

The market for BNPL has exploded in recent years, lately buoyed by the cost of living crisis, as consumers are attracted to the promise of interest-free future payments for items they could not otherwise afford to purchase.

Companies such as Klarna allow retailers to offer their products to customers on monthly payment plans lasting 30 days to three years, in return for a commission. New legislation will target shorter plans as credit agreements lasting longer than 12 months are already covered by the Consumer Credit Act.

The purchase schemes are popular. Adobe Analytics found that 12 per cent of online purchases made in the UK in January were made with BNPL, and debt charity StepChange said 27 per cent of Britons planned to use such a scheme to pay for Christmas last year.

However, ministers and campaigners fear that the unregulated nature of BNPL schemes risks people piling up debt with various providers.

Andrew Griffith, the City minister, said the government plans to bring the credit schemes under the eye of the Finacial Conduct Authority and give consumers the right to take complaints to the ombudsman.

Providers will also have to give consumers key information about their loans, and issue credit that is “genuinely affordable”.

The Treasury said it will work with the financial services sector to ensure credit is available to people who struggle to access it.

A number of buy now, pay later services have emerged in recent years


At the Financial Inclusion Policy Forum in Birmingham on Tuesday, the minister met debt advisers who will help to deliver free debt advice to more than 1.5 million people in England over the next three years.

Mr Griffith said: “People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important.

“This summit will also help regulators and banks better understand the best ways to support people who feel boxed in by debt, and open up the financial system to people who find it more difficult to access.”

Dr Theodora Hadjimichael, the chief executive of trade body Responsible Finance, described BNPL as “the Wild West of credit” and said regulation is “long overdue”.

The total value of BNPL has ballooned in the past couple of years after regulation all but killed the predatory payday loans market. A report by Research and Markets in November forecast 35 per cent growth year-on-year for 2022. In the US, the value rose from $2bn (£1.7bn) in 2019 to $24bn in 2021.

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