The government has announced tighter rules regarding so-called “buy now, pay later” (BNPL) loans. This includes new guidelines for advertising and checks to make sure customers can afford the loan.
Apple announced that it will launch an Apple Pay buy-now-pay-later option, initially in the US.
However, critics claim that BNPL schemes encourage people spend beyond their means.
The loans, which are used by 15,000,000 people in the UK in 2021, are usually spread over several payments.
The instalments are not subject to interest, but BNPL companies make money by selling products and may take a cut of sales. Customers who miss payments could be charged additional fees.
Clearpay, Laybuy, Klarna and PayPal are the main providers of the service in the UK.
The Financial Conduct Authority (FCA), which conducted a review of BNPL programs in September 2020, recommended that the industry be regulated.
Citizens Advice recently found that many consumers use credit cards and other debts to pay their bills.
2,288 people contacted the charity who used Buy Now Pay Later in the past 12 month.
The study found that 52% of respondents made repayments using their current accounts, while 23% used credit cards, 9% used bank overdrafts, and 7% borrowed money from friends.
It was found that young people with debt, and those claiming Universal Credit were twice as likely as other groups to have used BNPL for essentials like food, clothing, and toiletries.
The government has set out plans:
According to the government, other types of short-term interest-free credit such as those used for paying for dental work or larger purchases like furniture will need to follow the same rules.
John Glen, Economic Secretary to Treasury, stated in a statement that the proposals were being accompanied by: “We are protecting consumers, and fostering safe growth of the innovative market here in the UK.”
The proposals won’t be in force for at most one year. Legislation is scheduled for mid-2023. After that, the FCA will consult about new rules.
Alex Marsh, Head at Klarna UK, stated that he was happy with the new rules. He told the BBC that the company had already assessed whether customers can afford to pay and asked for them to be implemented sooner.
“We call on the Government to act faster than expected to implement regulation that provides additional protections for consumers against irresponsible, non-regulated BNPL providers as well as traditional banks that disguise high interest products under the ‘BNPL’ label.”
Citizens Advice called for quicker action as well: “The buy-now-pay later sector continues its meteoric growth, but it could remain unregulated for many years,” wrote Dame Clare Moriarty.
She urged the government to “turbocharge” its plans and protect consumers sooner.
