Millions of shoppers who use lenders are set to benefit from new rules this month
Shoppers using Buy Now Pay Later (BNPL) will face new rules later this month. The system is being overhauled across the UK from Wednesday, July 15, giving customers a better opportunity to avoid falling into devastating amounts of debt.
Millions of customers who rely on BNPL providers to put off making immediate payments on their purchases are set to benefit from enhanced protections under new regulations. From later in July, firms such as Klarna and Clearpay will come under the Financial Conduct Authority’s (FCA) oversight for the first time.
Assessments of affordability, help from BNPL companies for those experiencing financial hardship, and the option to refer complaints to the Financial Ombudsman Service if “something goes wrong” are among the updates to consumer protections, reports the Express.
What new rights will consumers have that they didn’t have before?
Jonathan Chesterman, debt advice policy manager at StepChange, said: “If something goes wrong, shoppers have the right to complain to the BNPL provider. If shoppers don’t receive a satisfactory response, they can then approach the Financial Ombudsman Service, which is free and objective.”
“Previously, if shoppers had a complaint they couldn’t resolve amicably or mutually with their BNPL provider, filing a court case under contract law would’ve been the only option. Shoppers will also receive more information about what they’re signing up to, what their commitments are and what the lender will or won’t do if they miss payments.”
What will the affordability checks involve?
While the exact checks remain uncertain, Jonathan suggested there “should be warnings” at the very least, or perhaps something like a calculator at checkout to transparently spell out what those repayments would involve before committing to the purchase. He added: “The key thing is lenders will have to do something, whether that’s asking the customer or a more detailed assessment of income and outgoings.”
Jonathan adds that the new checks tackle “two big problems”. He said: “Firstly, there are currently no credit checks, so people already in financial difficulty can keep taking on more debt.
“Secondly, at StepChange we’ve seen clients with over 30 BNPL agreements – they clicked the option every time they bought something, and they didn’t keep track of what they owed. Affordability checks should mean lenders can no longer passively let that happen.”
What happens if you use BNPL before the new rules?
Any BNPL arrangements entered into before July 15 will not be subject to the new regulations. For shoppers managing multiple BNPL arrangements, it’s worthwhile to review them now and ensure you have a clear understanding of what you owe and when payments are due.
The idea behind these new rules is that fewer shoppers will be pushed into debt due to the volume of BNPL agreements they’ve signed. Having checks in place could prevent people from taking on more than they can financially handle.
BNPL shoppers in debt should seek free debt advice from Citizens’ Advice. The charity helps thousands of shoppers dealing with unexpected costs, late fees, and contact from debt collectors.
