Millions of consumers using buy now, pay later (BNPL) services will now enjoy enhanced protections as new regulations take effect starting today. BNPL enables individuals to divide the cost of purchases into installments, typically without interest, spread over a specific period. The Financial Conduct Authority (FCA) estimates that around 11 million UK adults utilize this service, which can be a cost-effective means of accessing credit when managed responsibly.
In response to criticisms regarding the lack of oversight in the industry, BNPL is now subject to FCA regulation. Under these new rules, BNPL providers like Klarna and Clearpay are required to conduct appropriate credit and affordability assessments for each transaction to ensure customers can meet their repayment obligations. This may result in some individuals being declined BNPL credit if there are concerns about their ability to afford the debt.
Users of BNPL services will also receive transparent information upfront about their agreements, including payment schedules, amounts due, and consequences of missed payments. While interest is usually not charged by most BNPL lenders, late fees may apply for missed payments, and such instances can be reported to credit agencies, impacting credit scores negatively.
In cases of financial hardship where individuals struggle to make payments, BNPL firms are now mandated to offer increased support, such as guiding them to free debt advisory services. Furthermore, customers have the option to escalate any grievances to the Financial Ombudsman Service if they feel unfairly treated, starting from new BNPL agreements made today.
Additionally, shoppers now benefit from Section 75 protection, holding BNPL providers jointly accountable with retailers for faulty or undelivered items on purchases ranging from £100 to £30,000. Both Klarna and Clearpay have expressed approval of the stricter regulations, emphasizing the importance of consumer protection and fair lending practices in the BNPL sector.
Sarah Pritchard, the FCA’s deputy chief executive, emphasized the importance of responsible lending within the BNPL market to prevent exacerbating individuals’ financial difficulties. The FCA aims to ensure that the 11 million BNPL users are safeguarded by these proportionate regulations while supporting innovation in the industry.