Britain will introduce draft legislation on Tuesday to control “buy now, pay later” credit, claiming that the industry could harm consumers if accurate affordability checks were not made.
The majority of BNPL businesses are unregulated, and they frequently provide on-the-spot, short-term, interest-free loans to spread out payments for retail items like clothing.
During the pandemic in 2020, the industry grew to 2.7 billion pounds ($3.28 billion), nearly quadrupling.
Consumer groups are concerned that people using BNPL to pay for food or energy bills are piling debt because of Britain’s rising cost of living.
The Financial Conduct Authority (FCA) will be given the authority to authorise operators and their activities under new BNPL regulations that will go into effect on Tuesday, according to the finance ministry.
The change had been scheduled for late 2022.
“People should be able to access affordable credit, but with clear protections in place,” financial services minister Andrew Griffith said in a statement from the finance ministry.
The ministry warned that because lenders are not required to disclose key information to borrowers under BNPL agreements’ current minimal credit checks, some borrowers might end up taking on more debt than they can comfortably repay.
Consumers will now have the option to file complaints with the Financial Ombudsman Service, according to the ministry.
After identifying potential harm to customers in February of last year, the FCA instructed BNPL operators Clearpay, Klarna, Laybuy, and Openpay to modify their contracts. In the interim before the new legislation the ministry announced on Monday, it had to use consumer rights law.
After receiving its new authority, the FCA will consult on specific regulations for the industry, such as mandatory affordability checks, operator licensing, and fair marketing.
People of all ages were turning to BNPL, according to Jane Goodland, trustee of the Centre For Financial Capability, a nonprofit organization dedicated to financial education, as they struggled to make ends meet due to rising inflation, demonstrating the urgent need for regulation.
(Adapted from Bloombwerg.com)
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