Buy-now, pay-later (BNPL) lenders will be required to ensure that all loans are affordable under new regulations introduced by the UK government.
As part of the government’s plan to strengthen the regulation of interest-free BNPL, lenders will also be asked to amend any advertising to ensure that their messaging is fair, clear and not misleading.
The government plans to expand these rules to cover other forms of unsecure short-term credit that could pose similar risks to consumers, such as furniture financing or dental payments.
“BNPL 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,” said John Glen, economic secretary to the Treasury.
“By holding BNPL 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.”
The Treasury noted that consumers who use BNPL do not currently have “the usual full range of borrower protections”.
By asking lenders to carry out affordability checks and amending their marketing materials, the government hopes to reduce the potential harm cause by BNPL debt.
All lenders offering BNPL products must be approved by the Financial Conduct Authority (FCA), and borrowers will be eligible to make complaints about their service to the Financial Ombudsman Service.
A consultation response paper published today (20 June) lays out the government’s plans for BNPL regulation, with draft legislation expected by the end of the year.
The government aims to lay secondary legislation by mid-2023, after which the FCA will consult on its own rules for the sector.