Will the buy now, pay later system finally be regulated? The Government launches a consultation after its rapid promotion

The Government will launch a consultation on buy now, pay later, following a rapid rise in use of the unregulated product.

BNPL allows customers to spread the cost of purchases over the course of a few months, typically in three to six installments.

Companies like Klarna led the way in bringing the product to the masses, but the industry has been criticized by some experts for encouraging vulnerable customers to make payments they cannot afford.

Although some banks and lenders offering BNPL are regulated, many non-banking leaders are not and many customers are unaware that the payment is a form of lending.

The Government said it has launched a consultation to bring BNPL companies under the supervision of the Financial Conduct Authority (FCA) and apply Consumer Credit.

Changes are likely to include providing clear information so people can decide if a product is right for them.

It is also likely to include a requirement to carry out affordability and solvency checks before lending money.

BNPL customers will also have stronger rights if they have problems with products after purchasing them, including the application of Section 75 of the Consumer Credit Act.

This will allow customers to claim refunds from their lender and access the Financial Ombudsman.

The FCA welcomed the consultation and has long called for the products to come under its remit, following the Woolard Review in 2021.

Sebastian Siemiatkowski, co-founder of Klarna, said: ‘Congratulations to Tulip Siddiq and the Government for acting quickly. They have been working with industry and consumer groups long before taking office.

“We look forward to continuing that work to establish proportionate rules that protect consumers while encouraging growth.”

Clearplay’s Michael Saadat said: ‘We welcome today’s update from Tulip Siddiq on BNPL regulation.

‘It is encouraging that HM Treasury has listened to industry feedback and evolved the previous framework to ensure a more proportionate approach to regulation.

“We have always called for appropriate regulation that prioritizes customer protection, delivers much-needed innovation in consumer credit and sets high industry standards across the board.”

Steve Vaid, chief executive of Money Advice Trust, the charity that runs National Debtline, said: ‘The announcement is an important milestone in the introduction of BNPL regulation, something we have called for for a long time.

“Regulation will increase protection when using these products, and we need the Government and the FCA to act quickly to implement this.”

The FCA said it expected to take over regulation of the sector 12 months after the legislation was passed.