The Treasury has announced plans to regulate buy now, pay later (BNPL) products in response to its 2021 consultation, however, Martin Lewis is warning that the pace of progress is painfully slow after it emerged the Uk Government aims to lay secondary legislation by mid 2023.
Under the proposals announced on Monday, lenders will be required to “carry out affordability checks” and will “amend financial promotion rules to ensure buy now pay later advertisements are fair, clear, and not misleading”, the department added.
The Treasury said that lenders offering the product will need to be approved by the Financial Conduct Authority (FCA) and borrowers will be able to take a complaint to the Financial Ombudsman Service (FOS).
However, the founder of MoneySavingExpert.com (MSE) wants to see more immediate action taken to prevent people who choose the payment option from falling into debt.
He said: "Buy now, pay later regulation is desperately needed, so my pleasure that it’s finally to happen is tempered by frustration at how long it is taking.
“It’s now nearly two years since we raised the alarm about BNPL’s explosive growth and called for urgent regulation to ensure proper checks are in place, and that people can go to the Financial Ombudsman when there are problems. Yet those protections still won’t be in place for the financially bleak winter coming.”
Martin continued: "Buy now, pay later is often insidiously marketed as a simple payment option, or worse, a lifestyle choice. It’s not. It’s a debt, with all the dangers of debts. It perverts purchasing decision-making, leaving many in a continuous loop of owe-owe-owe. Firms make money from it because people transact more via BNPL than they would otherwise.
"Debt shouldn’t be something you slip into, it must be an informed, active, conscientious choice.”
However, the consumer champion also pointed out that in some cases BNPL can be a legitimately cheap way to spread the cost, especially during the cost of living crisis, but urged people considering it to ask themselves: “If I can’t afford to pay for it now, how will I afford to pay for it next month?"
Other forms of short-term interest-free credit, including those used to pay for larger items or dental work, “will be required to comply with the same rules” the department added.
The rules “will apply to businesses who partner with a third-party lender to provide credit”, the Treasury said, adding the UK Government was “asking for further stakeholder feedback to confirm whether they should also apply to online merchants who directly offer credit for the purchase of their own products”.
Economic Secretary to the Treasury John Glen said: “Buy now pay later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.
“By holding buy now pay later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”
A consultation on draft legislation will be published near the end of this year, with an aim to lay secondary legislation by mid 2023, after which the FCA will consult on its rules for the sector, the Treasury added.
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