According to press reports, ministers are set to delay plans to bring companies such as Klarna, Clearpay and Laybuy under Financial Conduct Authority (FCA) supervision.

Sky News has reported that Treasury officials have been told that a number of the BNPL industry’s biggest players could quit the UK market if they are subjected to “heavy-handed” regulation. It fears this could reduce the availability of low interest credit products.

Government ‘backtracking’ on promises

But the possible delay in regulating BNPL has alarmed debt charities and consumer groups. The Government previously said that more stringent oversight of BNPL products could protect as many as 10 million Brits from “unconstrained borrowing”.

Richard Lane, director of external affairs at StepChange Debt Charity, said: “This seems particularly counter intuitive during a cost-of-living crisis, where protecting financially vulnerable customers is more important than ever.

“We’ve long called for proportionate and effective regulation and warmly welcomed the Government announcement last year that they had heard the cross-party calls for regulation and would put in place new rules to protect customers. It makes it even more surprising now that the Government is considering backtracking on previous promises.”

There has been a huge growth in the use of BNPL products over the past few years, with services now available at a wide range of retailers offering anything from clothes to food.

Lane said: “We know that these products work well for millions of consumers, but we’re also concerned that current policies around late fees and affordability assessments vary significantly between providers.

“At present some consumers may hold multiple BNPL agreements that are unaffordable to them, which puts them at risk of escalating fees if they miss repayments. This is especially concerning as our research suggests a significant crossover between use of BNPL and financial difficulty, with many people borrowing to pay bills or make credit repayments.”

Government urged not to delay plans

The Government announced its intention to bring interest-free BNPL products into regulation in February 2021 after the Woolard Review, commissioned by the FCA, highlighted the potential risk of consumer detriment in the sector. Then, in October 2021, it launched a consultation about regulation of the sector, followed by a consultation document on draft legislation in February this year.

However, responses to the draft legislation are said to have prompted warnings that legislation could trigger the withdrawal of interest-free BNPL products, with ministers concerned about the impact of such a move during the cost-of-living crisis.

Rocio Concha, Which? director of policy and advocacy, said: “It is incredibly concerning to hear the Treasury is considering shelving its plans to regulate BNPL industry – especially as more people may be using credit options to make ends meet during the cost of living crisis.

“BNPL options appear at many online checkouts, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments, so the Government’s new rules and legislation proposed earlier this year were seen as an important step.

“The Government must not delay plans to introduce changes to the industry and ensure that consumers are given stronger safeguards to protect them and warn about the risks of using BNPL schemes. This needs to include greater marketing transparency and information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”

A HM Treasury spokesperson, said: “Regulation of buy now, pay later products must be proportionate so borrowers are protected, while still being able to access these useful interest-free products.

“No decisions have been made as we are reviewing the responses to our recent consultation and will report back in due course.”