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New regulation to hit the BNPL market in Britain

Tuesday 14 February 2023 09:25 CET | News

Britain has planned to set out draft legislation to regulate Buy Now, Pay Later credit, saying the sector posed potential harm to consumers without strong affordability checks.

 

BNPL companies are largely unregulated and typically offer on-the-spot interest-free short-term loans that spread payments for retail goods like clothing. The sector nearly quadrupled during the COVID-19 pandemic in 2020 to GBP 2.7 billion (USD 3.28 billion), according to Reuters.

Britain sets out draft legislation to regulate Buy Now, Pay Later

With Britain facing a cost-of-living crisis, consumer groups worry cash-strapped people are getting into debt by using BNPL to buy food or pay energy bills. The finance ministry said it will launch a public consultation on 14 February 2023 on legislation to regulate BNPL, giving the Financial Conduct Authority (FCA) powers to authorise operators and their activities. It want people to be able to access affordable credit, but with clear protections in place.

The current BNPL landscape in Britain and further actions

BNPL agreements currently rely on minimal credit checks, with lenders not required to give key information to borrowers, and some people may end up borrowing more than they can afford to repay. The finance ministry said consumers will be given the new right to take complaints to the Financial Ombudsman Service.

In February 2022, the FCA told BNPL operators Clearpay, Klarna, Laybuy, and Openpay to change their contracts after identifying potential harm to customers. It had to use consumer rights law pending the new legislation the ministry was announcing on 13 February 2023.

Once the FCA has been given its new powers, it will consult on detailed rules for the sector, such as mandatory affordability checks, licensing of operators, and fair marketing.

Officials from the Centre For Financial Capability, a financial education charity, said people of all ages were turning to BNPL as they struggled to meet payments due to rising inflation, showing the need for urgent regulation.


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Keywords: BNPL, FCA, regulation, compliance, lending
Categories: Payments & Commerce
Companies:
Countries: United Kingdom
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Payments & Commerce






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