The UK has confirmed plans to strengthen the regulation of interest-free buy-now, pay-later arrangements. The announcement comes in the form of a response to the Treasury's 2021 consultation which asked how it might protect consumers "without unduly limiting the availability and cost of useful financial products".
Under these proposals, BNPL providers will need to - among other things - obtain FCA approval (unless they can rely on an exemption) and make sure that loans are affordable and advertisements are fair, clear and not misleading. Read our briefing for an overview of the Treasury's proposals.
Thanks to today's announcement, we now know that there will be another consultation on draft legislation around the end of this year, with the government aiming to finalise the law by summer 2023. At which point the FCA will start consulting on what the detailed rules for BNPL will look like.
The government has also confirmed that the consumer credit regime will be expanded to cover other forms of unsecured short-term interest-free credit (STIFC) which it thinks may pose similar risks to BNPL. While stakeholder feedback is being sought on the application of the rules to merchant-provided STIFC (the deadline for this feedback being Monday 1 August), the government is clear that the rules will apply to businesses who partner with a third-party lender to provide credit.
The lack of regulation means that the approach taken by BNPL providers has varied. Some players have begun voluntarily providing information to UK credit agencies, with Klarna beginning to do so from June. The government said it expected to publish a consultation on the draft legislation towards the end of the year and aimed to lay secondary legislation by the middle of 2023. Following this, the FCA would consult on rules for the sector. The announcement is separate to Thursday’s commitment by the government to reform the Consumer Credit Act, which oversees personal loans including BNPL products.