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Companies offering buy now, pay later services, such as Klarna and Clearpay, are bracing for strict new rules as the Labour Party pushes ahead with plans to regulate the industry.
The Treasury is expected to announce reforms late next month, three years after rule changes were first considered in 2021.
Since then, Britons have spent almost £55bn via buy now, pay later (BNPL) lenders.
Crackdown: Treasury is set to announce reforms to the buy now, pay later industry by the end of next month, three years after rule changes were first considered in 2021
BNPL is an unregulated form of credit that allows consumers to defer payments or pay for products in installments.
Critics blame providers for trapping users in a spiral of debt as affordability controls are not strict enough.
But the platforms have welcomed Labour’s commitment to the new rules.
This comes as Swedish giant Klarna, the largest BNPL provider in the UK, continues with its long-held plans to list in New York, where it is reportedly targeting a £15.5bn valuation.
Ministers are in talks with lenders and consumer rights groups and aim to make an announcement on the sector within the first 100 days of the Labour government.
Before the election, Labour said it wanted BNPL companies to carry out affordability checks on customers and track their credit records more closely.
He said customers should be given clearer information when registering and be able to complain to the Financial Ombudsman Service when things go wrong.
The previous government’s plans to regulate the sector stalled amid fears that lenders would abandon the UK for countries with more relaxed rules.
Simon Trevethick, of the charity StepChange, welcomed the new government’s “clear commitment to regulation”.
“BNPL is often aggressively promoted at the point of payment,” he said. “Affordability checks are also inconsistent and a uniform approach is required. The sector is ready, it just needs political will.”
British consumers will spend around £9.4bn via BNPL services in 2024, up 3.5 per cent from the previous year, according to figures from Adobe.
Shopping accounted for 15.6 percent of the total amount spent by online shoppers during the year to the end of July.
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