Government initiatives revealed on the 20^th of June will protect millions of customers by tightening Buy-Now Pay-Later credit agreements. 

The plan, released on Monday, follows a Treasury consultation on worries that the unregulated BNPL industry is putting customers in debt. As with other loans, companies offering the service will do credit checks to guarantee users can afford the bill. 

Buy-now, pay-later credit arrangements allow customers to spread out the expense of a purchase. People don't have the typical complete range of borrower safeguards when taking out this form of loan, which could hurt consumers. 

As part of the new consumer protection regulations, misleading promotions and ads will be addressed, and BNPL firms will need FCA approval to operate in the UK. If the requirements are not followed, users can complain to the Financial Ombudsman Service (FOS).

As of November 2021, more than 17 million UK consumers had utilised BNPL's interest-free installment services.

Mike Peplow, CEO at Paynetics, says: 

"Regulation is an appropriate development for the BNPL space, bringing the product into the mainstream whilst making sure we have positive outcomes for consumers. 

Although BNPL often doesn’t charge an interest rate to the consumer, there are penalties and repercussions for late or non-payment.  Simply providing a link to terms and conditions on a website, or providing a page of small print in an App, is not going to be sufficient to convince the regulator that firms have sufficiently communicated the implications of taking on a BNPL product. The new affordability checks coming into play today will protect consumers from spending beyond their means. 

Regulation is a vital next step for BNPL and I believe these changes will help the consumer while continuing to champion the development of this innovative sector."

Neil Kadagathur, CEO and Co-Founder of Creditspring, says:

“While the proposed regulations are a welcome step forward, we simply cannot wait that long to regulate the BNPL sector. There is chronic miseducation about BNPL – one in seven UK adults thinks it’s impossible to get into debt using BNPL and a third are unaware that it’s even a form of borrowing and debt. This, combined with the cost of living crisis which we know is pushing more people into borrowing, is unsafe and unsustainable and is guaranteed to damage the long-term financial health of millions of UK borrowers.

In lieu of immediate regulation, the onus falls to lenders to ensure they are lending safely and protecting borrowers by not providing more credit than an individual can safely afford to repay.”

Colin Neil, UK Managing Director of Adyen says: 

“Choice and flexibility are vital for shoppers when it comes to paying for goods and services. And our research shows consumers are more likely to shop with retailers that offer a choice of payment options. Buy now, pay later services are important because they offer consumers another form of choice, and according to our research, some even say it helps them better manage their finances. But as with any financial product, there needs to be the right protection in place for consumers and retailers.”