Shoppers who use “buy now, pay later” loans are to get new safeguards against unaffordable borrowing and credit card-style protection for their purchases, under rules outlined by the UK government.
However, campaigners have questioned why the BNPL changes will not take effect until 2026, warning that consumers need to be “wary” in the meantime.
In recent years the market for BNPL has boomed, with many big retailers teaming up with lenders such as Klarna and Clearpay to allow consumers to spread the cost of their purchases.
But while the loans, typically advertised at online checkouts, do not attract interest, concerns have grown around the ease with which borrowers can build up unaffordable debt.
Research carried out last year by the Financial Conduct Authority (FCA) found that 14 million people had used BNPL and frequent users were more than four times as likely to have recently missed a payment for a bill or credit commitment than those who had not used the loans.
The Treasury said its new rules would allow the FCA to force BNPL companies to undertake affordability checks on would-be borrowers before people could sign up for a loan.
Bringing the sector under the financial watchdog’s authority and applying the Consumer Credit Act to it will mean companies will need to provide clear, simple and accessible information about loan agreements so that shoppers can make fully informed decisions and understand the risks associated with late repayments.
Shoppers will also benefit from section 75 of the act, which protects purchases if a company breaches its contract or provides faulty goods. The protection, which covers good and services costing between £100 and £30,000, already exists on credit card purchases.
The government said a consultation on the rules was due to end on 29 November “to reflect the urgent need for action to protect consumers”, but added that the changes would not take effect until 2026.
The founder of the MoneySavingExpert website, Martin Lewis, said on X: “Buy now, pay later is now ubiquitous at online checkouts, so the fact it’s never been regulated is a travesty I and others have long campaigned on. The last chancellor promised to regulate, then the tumbleweed rolled as he went silent, so I am delighted the new government has quickly restarted the process.”
But he added: “It’s not coming in until 2026, so people should still be very wary until then.”
The Labour MP and campaigner Stella Creasy said she was unclear why it would be another year before the rules were introduced.
“For five years we’ve been pleading for regulation to help protect millions of people [led] into a cycle of debt by these companies who encourage them to borrow more than they can afford. They get away with doing this because consumers have few safeguards against being mis-sold credit by them but the last government was blind to the dangers of them,” she said.
“With Christmas on the horizon, regulation cannot come a moment too soon as without it my constituents are still better protected from being ripped off by paying using a credit card or even a payday loan, so its critical when the consultation ends this happens as quickly as possible.”
The economic secretary to the Treasury, Tulip Siddiq, said: “Millions of people use buy now, pay later to manage their finances, but the previous government’s dither and delay left them unprotected.
“We promised to take action before the election and now we are delivering. Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”
