BNPL regulation strengthened to include ‘affordability checks’

BNPL regulation has been strengthened to include ‘affordability checks’ as the UK government sets out its long-awaited plans to regulate the sector for the first time.

The treasury estimates that “millions of people” will be protected as it toughens the regulation of interest-free buy now pay later (BNPL) credit agreements, under its new plans. Lenders will be required to ensure the loans are affordable, while providers must also conduct affordability assessments before offering customers one of the payment splitting plans.

Lenders will need to be approved by the Financial Conduct Authority (FCA) to operate in the sector, while marketing and promotional rules will also be amended to ensure advertisements are fair, clear and not misleading.

The proposed regulations were unveiled earlier this week, more than a year after the government first announced the sector would be overseen by the Financial Conduct Authority (FCA).

Economic secretary to the treasury John Glen said “appropriate protections” needed to be in place for all new financial products and services.

“By holding Buy-Now Pay-Later 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,” he added.

READ MORE: PayPal announces ‘Pay Monthly’ BNPL product

Companies such as Klarna and Clearpay have seen take-up of their BNPL schemes increase in recent years, while big tech names such as PayPal and Apple have jumped on the BNPL bandwagon recently.

Over a third of Brits (37%) have used one of the payment-splitting plans, rising to nearly half for Generation Z (42%). The value of the UK BNPL market doubled in 12 months last year, reaching £5.7billion.

Regulation has been widely welcomed by the industry, which recognises that the ongoing cost-of-living crisis increases the risk that vulnerable customers will turn to credit-based products.

Klarna Uk boss Alex Marsh said the proposals: “will raise standards and consumer protections across the sector.”

“We urge the government to move quicker than planned to implement regulation which gives additional protections to consumers from both irresponsible, unregulated BNPL providers and traditional banks disguising high-interest products as BNPL,” he added.

According to a recent survey from Citizens Advice, almost half of consumers have been using credit cards, overdrafts or borrowed money to make repayments on purchases. The research also found that young people, those in debt and/or claiming universal credit were using BNPL schemes to buy essential items.

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