Consumer Protections Strengthened: UK to Regulate Buy Now, Pay Later Services Under FCA
Posted on Oct 29, 2024 at 09:10 PM
Millions use Buy Now, Pay Later (BNPL) services like Klarna and Clearpay for quick and low-cost credit acquisition. However, many users are unaware of the potential late penalties and negative marks on their credit history if something goes wrong.
A Citizens Advice study revealed that 29% of BNPL customers borrowed money to fulfil their instalments in October 2023.
Additionally, 21% of BNPL customers skipped or made late payments in the 12 months leading up to November 30, 2023, and the number of people requesting assistance for BNPL debt increased by 67%.
BNPL Law's Impact on Purchasers
The UK government is implementing the Consumer Credit Act, regulating Buy-Now and Pay-Later businesses under the Financial Conduct Authority's (FCA) jurisdiction to ensure consumer protection and avoid unaffordable borrowing.
The proposals contain a few significant reforms, such as BNPL providers having to:
• Provide clear and understandable information about hazards to enable users to make informed decisions before using BNPL services.
• Verify customers' affordability. Businesses must verify that you have the financial means to reimburse them.
• Provide Section 75 BNPL transactions protection, allowing for liability sharing between the store and BNPL supplier in case of problems with goods costing over £100 but less than £30,000, similar to credit cards.
• Allow consumers to file complaints with the Financial Ombudsman Service, an independent arbitrator, if they receive no response from BNPL businesses and are eligible for a refund, making the process easier.
This marks the start of the protection consultation, which will end on Tuesday, November 29. The regulations won't go into effect until 2026, though.
The Lack of Regulation is a Disgrace
Martin Lewis, founder of MoneySavingExpert.com (MSE), criticises the lack of regulation for Buy Now, Pay Later, stating that the new government has swiftly restarted the process.
The BNPL regulation, set to come into effect in 2026, mandates firms to identify debt as a debt, establish affordability rules, and provide access to the ombudsman for issues.
Moreover, Martin and MSE, along with other campaigners, have long advocated for regulating the BNPL market. Despite the previous Government's announcement in February 2021, the regulation was never implemented, despite renewed calls for action.
Stella Creasy MP, who has also advocated for BNPL regulation, stressed the urgency of the regulation as Christmas approaches. She emphasised the need to protect constituents from exploitation by credit cards or payday loans and called for its prompt implementation after the consultation ends.
BNPL Rule's Wider Effects
Economic Secretary Tulip Siddiq announced new rules to protect millions using Buy-Now and pay-later for financial management. The rules allow the FCA to apply affordability rules and prevent unmanageable debt accumulation.
Rocio Concha, Which? The Director of Policy and Advocacy, supports new regulations for BNPL products, arguing that clear information about risks, affordability checks, and redress options benefits consumers.
Klarna CEO Sebastian Siemiatkowski congratulates Tulip Siddiq and the government for swiftly implementing proportionate rules to protect consumers and foster growth.
Justin Basini, CEO of The ClearScore Group, supports a consultation to standardize creditworthiness assessments for buy-now and pay-later borrowers, ensuring flexibility and risk management in this crucial form of credit.
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