The use of buy now, pay later – which lets users spread the cost of a purchase over time without interest – has soared over the last few years.

In a bid to clamp down on unregulated firms and to ensure those who need it have access to the interest-free credit, the Government has set out proposals for the industry.

It said BNPL credit products are set to be regulated by the City watchdog, the Financial Conduct Authority (FCA) which means users will have the right to take complaints to the Financial Ombudsman Service.

Further, as part of the consultation launched today at a summit of banks and debt charities, the Government rules would require providers to give users key information about their loans, and issue them with credit that is “genuinely affordable”.

The Government said that BNPL can be “quick, easy, and helpful way for people to manage their finances”.

But, because many of the agreements aren’t currently regulated and rely on minimal credit checks, “lenders are not required to give key information to borrowers”.

This means “some people may end up borrowing more than they can affordably repay”.

‘Proposed regulations are so important’

Economic secretary to the Treasury Andrew Griffith, said: “People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important.

“Today’s summit will also help regulators and banks better understand the best ways to support people who feel boxed in by debt and open up the financial system to people who find it more difficult to access.”

This isn’t the first time the Government has looked to crack down on the industry. In October 2021, it launched a consultation about regulation of BNPL lending following concerns raised by the City watchdog over the potential risk of consumer detriment in the sector.

It came after BNPL faced increasing criticism for encouraging users to spend more than they could afford.

And in June 2022, the Government announced that as well as affordability checks, rules will be amended around the financial promotion of BNPL to ensure adverts are fair, clear, and not misleading.

According to Equifax, BNPL use hit an all-time high in the led up to Christmas 2022, as it predicted its use will continue to rise in 2023 amid the cost-of-living crisis.

‘Right regulation’

Gary Rohloff, managing director and co-founder of BNPL lender Laybuy, said: “We have always supported proportionate regulation of the BNPL sector. We need a regime that protects consumers but one that strikes a balance and supports innovation, competition and reflects the lower risk and average purchase size compared to other forms of credit like store cards or credit cards.

“From the very start, we have always conducted credit checks and we were the first BNPL to begin sharing data with credit reference agencies too. So we are happy to engage with the Government on the next steps to make sure we get the right regulation.”