Some consumers may face restrictions when using buy now, pay later (BNPL) services as tighter affordability assessments are set to be implemented next year. The Financial Conduct Authority (FCA) has initiated a new review to safeguard customers from accumulating unmanageable debt through BNPL transactions.
BNPL allows individuals to make purchases on credit with deferred payment options, typically interest-free over several months. However, concerns raised by debt charities highlight cases where individuals take on loans beyond their financial means. Late fees can be incurred for missed BNPL payments, and certain companies may report such incidents to credit bureaus.
Under the proposed regulations, BNPL providers will be required to assess borrowers’ repayment capabilities and provide assistance in cases of financial distress. Additionally, consumers will have recourse to the Financial Ombudsman Service for resolution of any issues.
The new rules are anticipated to be enforced once BNPL falls under FCA jurisdiction next year. Recent FCA data reveals that approximately 20% of UK adults, equivalent to around 10.9 million people, utilized BNPL services at least once in the twelve months leading to May 2024, up from 17% in 2022.
As of May 2024, 2% of UK adults (1.1 million individuals) had outstanding unregulated BNPL debts exceeding £500, while 11% (5.3 million individuals) had outstanding balances of £50 or more.
The FCA consultation period for feedback extends until September 26, 2025, with the rules slated for implementation starting July 15, 2026. Companies will have a six-month window from the enforcement date to seek full authorization.
Sarah Pritchard, FCA’s deputy chief executive, emphasized the importance of regulating BNPL products to ensure consumer protection and informed financial decisions. The focus remains on leveraging existing requirements, such as the Consumer Duty, to support sector growth and innovation.
Representatives from Klarna and Clearpay expressed support for the impending regulations, emphasizing the significance of consumer protection and regulatory compliance in fostering trust and sustainability within the BNPL sector. Klarna’s collaboration with the FCA aims to balance consumer choice and innovation while upholding UK financial legislation standards.
Clearpay highlighted consumer research indicating increased BNPL usage post-regulation, underscoring the importance of aligning BNPL services with UK financial laws for consumer trust and long-term viability.
[End of rewritten article]