Britain plans to regulate ‘buy now, pay later’ lenders

Britain plans to make “buy now, pay later” (BNPL) companies carry out affordability checks, gain approval by the Financial Conduct Authority (FCA) and ensure adverts are fair and clear, the government said on Monday, in measures to regulate the sector.

BNPL businesses, which are unregulated, typically offer interest-free short-term loans that spread payments for retail goods such as clothing and have, according to the government, rapidly increased in popularity.

“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,” said John Glen, economic secretary to the finance ministry.

The government said it would publish a consultation on draft legislation towards the end of this year and would then lay secondary legislation, used to fill in the details of Acts, by mid-2023. After that, the FCA would consult on its rules for the sector, it added.

Martin Lewis, founder of consumer campaign group MoneySavingExpert.com, said progress to ensure proper checks has been “painfully slow”.

“Buy now, pay later is often insidiously marketed as a simple payment option … It’s not. It’s a debt,” Lewis said.

The FCA in February told BNPL operators Clearpay, Klarna, Laybuy and Openpay to change their contracts after identifying potential harm to customers. It had to use Britain’s consumer rights law.

BNPL companies charge online retailers a fee for each transaction

Laybuy co-founder Gary Rohloff said the company has always favoured proportionate rules that reflect the low risk of BNPL and that it is supportive of the government’s approach.

The BNPL business model emerged in times of very low interest rates, but the prospect of sustained increases to interest rates could spell trouble for the sector.