In a move to enhance consumer safety, the government has initiated a consultation to bring BNPL companies under the oversight of the FCA.
This development aims to extend crucial protections familiar to traditional credit users to those opting for BNPL services, which have surged in popularity for their payment flexibility.
Economic Secretary to the Treasury, Tulip Siddiq, emphasized the government’s commitment to consumer protection, noting that the delay in regulation by previous administrations had left many users vulnerable. “Millions of people use Buy-Now, Pay-Later to manage their finances, but the previous government’s dither and delay left them unprotected,” she stated.
The proposed regulations are designed to ensure that BNPL firms assess the affordability of loans, thereby preventing consumers from accruing unmanageable debt.
The consultation also proposes that BNPL companies provide transparent and straightforward information about loan agreements before any transaction. This measure aims to foster informed decision-making among consumers by clearly outlining the risks associated with delayed payments.
Moreover, the new framework will enhance consumer rights, making it easier for BNPL users to seek redress. This includes the application of Section 75 of the Consumer Credit Act, allowing consumers to claim refunds directly from lenders for faulty products and facilitating access to the Financial Ombudsman Service for grievances.
Rocio Concha of Which? welcomed the regulatory advancements, highlighting their potential to safeguard consumers effectively. “Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees,” she explained.
The industry has also shown support for the government’s proactive approach. Sebastian Siemiatkowski, CEO of Klarna, praised the collaborative efforts leading to these regulatory proposals. Michael Saadat from Clearpay echoed this sentiment, expressing approval of the evolved regulatory framework that promises consumer protection while fostering sector growth.
Chris Woolard, author of the 2021 Woolard Review, marked the announcement as a pivotal moment for consumer finance, ensuring robust protection for BNPL users, particularly the most vulnerable.
The consultation period is set to close on 29 November, with final legislation expected to be laid before Parliament in early 2025. The FCA will then finalise the rules, set to take effect in 2026, establishing long-awaited regulatory clarity and standards for the BNPL sector.
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