The UK Government is moving forward with new regulations aimed at safeguarding online shoppers utilizing buy now, pay later (BNPL) products.
The Government has initiated a consultation on these proposals, which will place companies under the oversight of the Financial Conduct Authority (FCA) and enforce the Consumer Credit Act. This will ensure that users receive clear information, avoid unaffordable borrowing, and possess robust rights when problems arise.
Tulip Siddiq, Economic Secretary to the Treasury, stated, “We promised to take action before the election, and now we are delivering. Our approach will provide shoppers with the essential protections available with other forms of credit while ensuring the sector can innovate and grow.”
The new regulations will empower the FCA to conduct affordability checks, requiring BNPL firms to confirm that shoppers can manage repayment before extending a loan.
Companies will also be obligated to offer “clear, simple, and accessible information” about loan agreements in advance, enabling shoppers to make informed decisions and understand the risks associated with late payments.
In a concession to the industry, existing Consumer Credit Act information disclosure rules will be relaxed, allowing the FCA to consult on tailored rules that better fit the online context in which BNPL products are typically utilized.
Industry representatives had cautioned that requiring a static ‘credit agreement’ for every credit application and BNPL transaction would significantly impede the speed of online purchases.
Michael Saadat, international head of public policy at Clearpay, expressed support for the update from City and FinTech Minister Tulip Siddiq, noting that HM Treasury has adapted its approach based on industry feedback to create a more proportionate regulatory framework.
Users of BNPL services will also gain enhanced rights in case of issues with purchased products, making it simpler and faster to seek remedies. This includes the implementation of Section 75 of the Consumer Credit Act, which allows consumers to claim refunds from their lender, as well as access to the Financial Ombudsman Service for complaints.
Rocio Concha, director of policy and advocacy at Which?, commented that research shows many BNPL customers are unaware they are incurring debt or do not consider the possibility of missed payments, which can lead to unlimited fees. Therefore, providing clearer information about these risks, along with affordability checks and redress options, would greatly benefit consumers. She added that there is a strong desire to see the legislation passed promptly.
The consultation will remain open until November 29, with final legislation expected to be introduced in Parliament in early 2025. After the legislation is finalized, the FCA will establish the rules, which are set to take effect in 2026.