The Treasury has unveiled a consultation on the policy options for the buy now, pay later (BNPL) sector as potentially firmer regulation on the market comes into sight.
According to City AM, the Treasury remarked that the consultation ‘sets out policy options to achieve a proportionate approach to regulation of BNPL’. This follows the publishing on the Woolard Review earlier this year, which recommended BNPL products should be brought within the scope of Financial Conduct Authority (FCA) regulation.
The Woolard Review raised the potential damage to consumers the BNPL market can create, with a lack of affordability checks, product and credit agreement information and inconsistent treatment of people who were financially struggling highlighted as red flags.
The BNPL market has experienced huge growth over the past year, as the mix of lockdowns and financial insecurity helped the sector reach more consumers than ever before, with the market hitting a £2.7bn valuation in 2020. However, the industry is fraught with challenges. Recent research found BNPL shoppers in the UK have been charged around £39m in late fees over the last year – a common occurrence for those who miss payments.
Currently, the BNPL market is not regulated and is able to rely on an exemption from consumer credit rules. This has led to the market to come under fire, with some campaigners who are for the regulation of the industry claiming it can encourage consumers, especially younger ones, to rack up debts.
BNPL giant Klarna responded to the consultation, claiming that while it ‘continuously sets the standard for the sector’ there are undoubtedly ‘bad products out there’.
Klarna co-founder and CEO Sebastian Siemiatkowski said, “Ultimately, this [consultation] will drive consistency and improve outcomes for all consumers, especially as we see more traditional lenders entering the sector who, as we all know, have a long history of finding dirty tricks to keep their customers in debt by adding fees and charging high interest.”
Earlier this year, the Monetary Authority of Singapore raised growing concerns over consumers drowning in unseen debt due to BNPL, and were investigating if some form of regulation is necessary for BNPL schemes.
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