Gov outlines buy now, pay later regulation

The government has announced plans to strengthen regulation of interest-free buy now pay later (BNPL) credit agreements, which will require providers to implement affordability checks.

BNPL credit agreements can be a way to manage finances, allowing people to spread the full cost of a purchase over time. However, the government said people do not currently have the “usual full range of borrower protections” when taking out this type of loan, resulting in a potential risk of harm to consumers.

Under the new plans, lenders will be required to carry out affordability checks, ensuring loans are affordable for consumers, and will amend financial promotion rules to ensure BNPL advertisements are fair, clear, and not misleading. Lenders offering the product will need to be approved by the Financial Conduct Authority (FCA), and borrowers will also be able to take a complaint to the Financial Ombudsman Service (FOS).

Economic Secretary to the Treasury, John Glen said: “Buy now pay later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.

“By holding buy now pay later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”

Given its “complexity”, the government added it will publish a consultation on draft legislation toward the end of this year. Following this, the government aims to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

Reacting to the news, Gary Rohloff, co-founder and MD of Laybuy, said: “We have always been in favour of a proportionate model of regulation, one that reflects the low risk of BNPL, supports small e-commerce businesses and sets high standards across the industry.

“Since we started Laybuy, we have always set out to be the most responsible BNPL lender. That means working with credit reference agencies and conducting creditworthiness checks on all our customers. It’s a real endorsement of our model that the Government agrees that this should be taken forward across the industry.”

He added: “Naturally, we need to have a look at the consultation response in full, but we’re supportive of the Government’s approach and we look forward to working closely with the FCA on the next steps.”