The UK government has revealed it is planning to implement stricter rules on ‘buy now, pay later’ (BNPL) services in order to improve the protection of the payment option’s users.
The move comes as concern around BNPL grows alongside the ongoing ‘cost of living’ crisis, which has continued to worsen in the region.
The proposal will require lenders to carry out affordability checks which will ensure that loans are affordable for consumers and that BNPL advertisements are not misleading.
Lenders that wish to offer the product will additionally need to be approved by the Financial Conduct Authority (FCA), while borrowers will be able to make complaints to the Financial Ombudsman Service.
“BNPL can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place,” said John Glen, economic secretary to the treasury, in a release.
Glen continued: “By holding BNPL to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”
The government said it is expecting to publish a consultation on draft legislation towards the end of the year, with the aim to lay secondary legislation by mid-2023. Following this, the FCA will be set to consult on its rules for the sector.
The announcement closely follows an additional commitment by the government revealed on Thursday, which will see it reform the Consumer Credit Act.
The reformation will move a portion of the Act from statute to sit under the FCA, allowing the regulator to respond quicker to developments in the consumer credit market instead of amending existing legislation.
Additionally, it will simplify technical terms to make it easier for consumers to understand the protections they have and for businesses to comply with regulations.