After years of deliberation, the UK Government is finally set to introduce new regulations aimed at addressing what it terms the ‘wild west’ of buy now, pay later (BNPL) lending.
Under the proposed changes, millions of BNPL shoppers will benefit from enhanced rights and clearer information as the Government reforms the 50-year-old Consumer Credit Act to align it with modern borrowing practices. This will include upfront checks to ensure borrowers can repay their debts, expedited access to refunds, and the ability to lodge complaints with the Financial Ombudsman—bringing BNPL in line with traditional credit products.
The Government intends to eliminate outdated and confusing regulations, with oversight transitioning to the Financial Conduct Authority (FCA). This legislative change follows an FCA report that revealed one in ten individuals struggled to pay essential bills while many more have been utilizing BNPL products over the past three years. The legislation will be presented in Parliament on 19 May.
Tom MacInnes, director of policy at Citizens Advice, remarked, “For too long, people have faced the risk of unaffordable debt from a BNPL sector that has operated in a regulatory grey area. This has resulted in dire consequences for many, leaving them unable to meet essential bills and often relying on emergency support, such as food bank vouchers.”
He added that while this is a significant step forward, it is crucial for the FCA to quickly establish robust consumer protections that are urgently needed.
The new rules have generally received support from BNPL providers. A spokesperson for Clearpay noted that recent research indicated nearly half of UK adults (48%) are more likely to use BNPL once it is regulated, with 71% believing that it should comply with UK financial legislation. This announcement is expected to enhance consumer trust and establish a more sustainable framework for the future growth of BNPL as a mainstream payment option.