Millions of people will be protected through strengthening
regulation of interest-free Buy-Now Pay-Later credit agreements,
under plans announced by the government today
(20th June).
Buy-Now Pay-Later credit agreements can be a helpful way to
manage your finances, allowing people to spread the full cost of
a purchase over time. However, people do not currently have the
usual full range of borrower protections when taking out this
type of loan and they are rapidly increasing in popularity,
resulting in a potential risk of harm to consumers.
Under plans set out by the government today, it confirmed that
lenders will be required to carry out affordability checks,
ensuring loans are affordable for consumers and will amend
financial promotion rules to ensure Buy-Now Pay-Later
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, 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.”
Today’s consultation response sets out the government’s proposals
for regulation of the sector. Given its complexity, the
government 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.
The government has also confirmed that other forms of short-term
interest-free credit, such as those used to pay for dental work
or larger items like furniture, will be required to comply with
the same rules announced today, given the risks posed are similar
and consumers should receive consistent protections from similar
products. These rules will apply to businesses who partner with a
third-party lender to provide credit, and the government is
asking for further stakeholder feedback to confirm whether they
should also apply to online merchants who directly offer credit
for the purchase of their own products.
Today’s announcement forms part of the government’s plan to grow
the economy to tackle the cost of living. The Chancellor has
provided £37 billion of support to help, including providing the
eight million most vulnerable British families with at least
£1,200 of direct payments this year – and giving every household
right across the UK £400 to help with their energy bills.
Notes to editors
- Our response to our consultation of regulation of
buy-now-pay-later credit agreements confirmed the government’s
intention to:
- Amend the scope of regulation to capture BNPL and other
currently-exempt agreements (which we refer to as short-term
interest-free credit (STIFC)) when they are provided by
third-party lenders;
- Extend this scope to also capture STIFC provided directly by
merchants where it is offered online or at a distance, although
further stakeholder engagement is necessary to fully understand
the scale of the merchant-offered STIFC market;
- The government will allow exemptions for specific agreements
where there is limited risk of potential consumer detriment, and
where regulation would otherwise adversely impact day-to-day
business activities;
- The government’s approach to regulatory controls for
agreements that will be brought into regulation will tailor the
application of the Consumer Credit Act 1974 (CCA) to these
products, and the elements of lending practice most linked to
potential consumer detriment. Users of BNPL already benefit from
consumer protection regulation. This includes agreements being
subject to:
- rules and guidance on advertising;
- the Consumer Rights Act 2015 concerning the fairness of
contract terms; and
- the Consumer Protection from Unfair Trading Regulations
2008 in relation to unfair commercial practices.
