Buy-now-pay-later finally set to be regulated? Government launches consultation following its rapid rise
The Government will launch a consultation into buy-now-pay-later, following a rapid rise in use of the unregulated product.
BNPL allows customers to spread the cost of purchases over the course of a few months - typically in three to six instalments.
Firms like Klarna led the way in bringing the product to the masses, but the industry has come under fire from some experts for encouraging vulnerable customers to make payments they can't afford.
BNPL payments are set to come under the supervision of the financial watchdog
Although some banks and lenders that offer BNPL are regulated, many non-bank leaders are not and many customers are unaware that the payment is a form of loan.
The Government said it has launched a consultation to bring BNPL companies under the supervision of the Financial Conduct Authority (FCA) and applying the Consumer Credit.
Changes are likely to include providing clear information so people can decide whether a product is right for them.
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It is also likely include a requirement to undertake affordability and creditworthiness checks before money is lent.
BNPL customers will also be given stronger rights if they have issues with products after buying them, including applying the Section 75 of the Consumer Credit Act.
This will allow customers to claim refunds from their lender and access to the Financial Ombudsman.
The FCA welcomed the consultation having long called for the products to be brought into its remit, following the Woolard Review in 2021.
Sebastian Siemiatkowski, co-founder of Klarna, said: 'Congratulations to Tulip Siddiq and the Government on moving quickly. They have been working with the industry and consumer groups long before coming into office.
'We're looking forward to carrying on that work to put proportionate rules in place that protect consumers while fostering growth.'
Michael Saadat, of Clearplay, said: 'We welcome today's update from 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.
'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.'
Steve Vaid, chief executive of the Money Advice Trust, the charity that runs National Debtline, said: 'The announcement is an important milestone in introducing BNPL regulation, something we have long called for.
'Regulation will increase protections when using these products, and we need to see the Government and the FCA acting swiftly to put this in place.'
The FCA said it expected to take on regulation of the sector 12 months after the legislation is made.
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