Buy now, pay later allows people to spread the cost of purchases, normally interest-free, over a set period of time
Millions of buy now, pay later (BNPL) users will benefit from greater protections under new rules that are coming into force today (July 15).
BNPL allows people to spread the cost of purchases, normally interest-free, over a set period of time. The Financial Conduct Authority (FCA) estimates that 11 million UK adults use this service, and when used responsibly, it can be a cheap way of accessing credit.
But the sector has come under fire in recent years over its lack of regulation, and the consequential risk of shoppers ending up with unmanageable debt if they don’t keep up their payment plan.
What is changing?
BNPL is now under FCA regulation. This means firms will need to be authorised by the regulator in order to offer BNPL agreements. They will have six months from today to apply for full FCA authorisation.
Under the changes, BNPL firms such as Klarna and Clearpay must conduct proportionate credit and affordability checks for every single purchase, to ensure that shoppers can meet their repayments.
This means some shoppers could be refused this type of credit, if there are concerns that they may not be able to afford the debt they are taking on.
Anyone using BNPL will also get clear, upfront details about their agreement – including when payments are due, how much they will be, and what happens if they miss a payment.
Even though most BNPL lenders do not charge interest, you can be charged late fees if you miss a payment. Missed payments can also be reported to credit reference agencies, which can have a negative impact on your credit score.
If someone finds themselves in financial difficulty and they cannot make their payments, then firms will also now have provide greater support, including signposting them to free debt advice.
Should things go wrong, and someone is treated unfairly, then customers can now raise a complaint to the Financial Ombudsman Service (FOS). This applies if you make a BNPL agreement from today, but not previous arrangements.
Shoppers also gain Section 75 protection from now. This means BNPL lenders are jointly liable with retailers for faulty or undelivered items on purchases between £100 and £30,000.
What do the major BNPL providers say?
Klarna and Clearpay have both welcomed the stricter rules. Klarna said it has called for regulation since 2020.
A spokesperson said: “The FCA’s rules largely formalise what we already do — we run affordability checks, show costs up front and report to credit reference agencies — while our 12 million customers in the UK gain new protections like Section 75 cover and Ombudsman access.
“Interest-free buy now pay later is a simpler, fairer, lower-cost alternative to revolving credit. Robust regulation that gives consumers added confidence and strengthens their access to protections is a good thing.”
Clearpay says its research highlights that 77% of UK adults support the new framework, and that 61% believe it will provide better protection.A spokesperson said: “Clearpay welcomes Buy Now, Pay Later (BNPL) regulation that comes into effect today, which will help establish a consistent operating environment and clear standards for all providers.
“Millions of consumers rely on BNPL for short-term and interest free credit to make everyday purchases. We will continue to provide our existing safeguards that customers have long valued, including pausing accounts if a single payment is missed and capped late fees.
“Now they will also have access to important protections like Section 75, creditworthiness checks and access to the Financial Ombudsman Service.“
What does the FCA say?
Sarah Pritchard, deputy chief executive at the FCA, said: “We want the buy now, pay later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products.
“But crucially, no one should be lent to if they’re unable to repay, because that could worsen their financial situation. Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”
