The UK government has announced that it is set to introduce new rules around buy now pay later from next year. This will give the 11 million shoppers in the UK who use it stronger rights and clearer protections from next year when using companies like Klarna, Laybuy and Clearpay.
Recent figures from Money Wellness have shown a 68% increase in the last year in the number of people who are seeking help with debt caused by buy-now pay-later, demonstrating its increasing prevalence and its impact on people’s finances.
But what are the current issues with buy now pay later? And what has the government announced to protect consumers? Keep reading to find out.
What are the current problems with Buy Now Pay Later?
At the moment, there is very little regulation regarding buy now pay later (BNPL), leading critics to describe the industry as being like a “wild west”.
Some of the issues with the current BNPL system include the following:
- The sector is largely unregulated, meaning providers don’t have to follow the same rules as traditional credit lenders.
- People can access BNPL without any checks to see if they can afford repayments, which increases the risk of falling into debt.
- Purchases made using BNPL aren’t covered by Section 75 of the Consumer Credit Act, so consumers have fewer rights if something goes wrong.
- BNPL is often promoted heavily during the checkout process, sometimes being shown as the default payment method, especially on websites aimed at lower-income users.
- The terms and conditions can be unclear, leading many people to misunderstand how BNPL works or overlook the potential consequences of missed payments.
- Consumers can’t currently take complaints to the Financial Ombudsman Service if they have a problem with a BNPL provider.
- Most BNPL firms don’t report borrowing to credit reference agencies, which means debts can go unnoticed and make it harder for people to manage their overall financial picture.
What Buy Now Pay Later rules are being introduced?
In October 2024, the government published a consultation setting out their plans to regulate the BNPL market. Following this, they recently announced stronger rights and clearer information for consumers which will bring BNPL in line with other products. This includes the following:
- Upfront checks to make sure that people can repay what they can borrow
- Fairer and faster access to refunds
- The right to also complain to the Financial Ombudsman
These rules are to be implemented from next year, and therefore consumers won’t notice any change for the time-being. This forms part of the government’s plans to reform the Consumer Credit Act to deliver a modernised, “pro-growth” regime.
Our thoughts
Ultimately, the proposals to reform the Consumer Credit Act by introducing stricter regulations around buy now pay later should be seen as a positive for consumers. At a time when the UK continues to face a cost of living crisis, many people living on the breadline have turned to forms of credit like buy-now pay-later who may not otherwise be able to access credit in the form of credit cards. The reforms introduced by the government will therefore go some way to helping to protect financially vulnerable people from incurring significant debt due to usage of buy-now pay-later.
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