The new rules will mean companies that offer the popular shopping credit will need to make sure shoppers can afford the repayments before the cash is offered.
BNPL firms will also need to give “clear, simple and accessible information” about loan agreements as part of the application process.
It is so that the estimated 15.1 million shoppers who use the payment method are fully informed and understand the risks that come with making late payments on the accounts.
Around a quarter of customers who use providers such as Klarna, Clearpay and Laybuy missed a payment, according to research from the Centre for Financial Capability (CFC).
The proposals will remove disclosure rules from the Consumer Credit Act and allow the Financial Conduct Authority (FCA) to provide bespoke regulation for the lending product.
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Meanwhile, customers will also be given stronger rights if any issues arise with their provider, so any necessary redress can be made quicker to them.
This will also give the opportunity for any complaints with a BNPL company to be escalated to the Financial Ombudsman Service (FOS), which is the dispute resolution service.
Tulip Siddiq, economic secretary to the Treasury, said: “Millions of people use buy now, pay later to manage their finances, but the previous Government’s dither and delay left them unprotected.
“We promised to take action before the election and now we are delivering. Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”
The FCA warned BNPL firms over their consistent failings to tell customers about the dangers of missing repayments in 2022, and experts have long called for regulation to be introduced to protect shoppers.
‘Much-needed protections’
Rocio Concha, Which?’s director of policy and advocacy, said: “Which? has been a leading voice calling for the regulation of buy now, pay later for years, so it’s positive that new rules are coming in that should provide much-needed protections for users of these products.
“Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers.”
Concha added: “We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.”
