Some 11 million people per year use this form of borrowing, and the Government said it wanted to stop the “wild west” of unregulated borrowing by putting in upfront affordability checks, the right to complain to the independent ombudsman, and faster access to refunds.
Emma Reynolds, Economic Secretary to the Treasury, said: “Buy now, pay later has transformed shopping for millions, but for too long has operated as a wild west – leaving consumers exposed.
“These new rules will protect shoppers from debt traps and give the sector the certainty it needs.”
Consumer Credit Act reforms
Reynolds said the reforms to the BNPL rules will include upfront checks to make sure people can repay what they borrow, fairer and faster access to refunds, and the right to complain to the Financial Ombudsman — bringing BNPL in line with other credit products.
She added that the Consumer Credit Act, which is the legislation that is currently used to protect customers when they buy items, will be reformed and the current regime will be replaced with a “modern, pro-growth framework that reflects how people borrow today”.
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“Outdated and confusing rules will be removed, with oversight shifting to the FCA’s more flexible system — cutting unnecessary burdens on business while strengthening protections for consumers,” she said.
But Lisa Webb, consumer law expert at Which? said the current Consumer Credit Act contains important consumer protections.
“It’s important these are maintained,” she added.
Consumer Credit Act protections include Section 75, which allows consumers who use credit cards to claim against the card provider if the retailer they buy from won’t refund them if there is a problem. The act also gives protections such as a 14-day cooling-off period on purchases, and the need for regulated creditors to have a licence.
Protection and transparency
Organisations said ensuring BNPL is regulated like other types of debt will protect customers.
Madhusudan Kejriwal, CEO of credit reference agency TransUnion, said: “By promoting transparency, preventing unaffordable borrowing, and providing consumers with rights when issues arise, BNPL legislation will play a vital role in driving financial inclusion and broadening access to credit.”
Richard Lane, chief client officer at debt charity StepChange, said customers who use BNPL are currently vulnerable due to inconsistent affordability checks and a lack of rules around marketing.
“As it’s generally interest-free, BNPL can be a useful and convenient way to manage chunky expenses, but it’s crucial that consumers receive the same protections as they would with other forms of credit.
“For years now we’ve seen first-hand the impact of BNPL services operating unregulated – with people struggling with multiple BNPL debts across several retailers, and often it’s among those who are already in financial difficulty and using credit to make ends meet.
“With a clearer outline expected of what new rules around BNPL will involve, today’s announcement is welcome progress toward proper regulation of BNPL. It’s been a long road to get here, and we hope to see the Government follow through on this commitment as quickly as possible,” he said.
