Buy now, pay later set for major crackdown under new rules to protect borrowers
Buy now, pay later (BNPL) firms are set to face tougher rules as part of a proposed clampdown that would offer greater protection for borrowers.
A new consultation has launched today and will look at how BNPL products could be brought under Financial Conduct Authority (FCA) regulation.
Customers will also be able to take complaints about companies to the Financial Ombudsman.
BNPL providers would also be responsible for checking loans are genuinely affordable for customers, as well as providing clear information about the terms and conditions of borrowing.
The new regulations are set to help protect an estimated 10 million customers, according to the Treasury.
British Gas debt collectors break into vulnerable people’s homes to fit meters
The Government has previously outlined plans to strengthen rules around BNPL firms.
In June last year, it said lenders would be required to carry out checks to make sure loans are affordable for consumers.
Economic Secretary to the Treasury Andrew Griffith said: "People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important.
"Today's summit will also help regulators and banks better understand the best ways to support people who feel boxed in by debt and open up the financial system to people who find it more difficult to access."
BNPL lets shoppers buy items on credit and pay for it later, usually spread out over several months, interest-free.
Used responsibly and for something that you can afford to pay back, it can be a cheap way of accessing credit.
But experts have raised concerns over people getting into large amounts of debt by using these services, or borrowing more than they can afford.
Unlike applications for credit cards and mortgages, BNPL companies don’t use "hard" credit checks to judge your affordability.
Some BNPL firms have started to report missed payments to credit referencing agencies, which means missing a payment could harm your credit score.
For example, Klarna and Laybuy will report your payment history to credit rating agencies if you continue to miss repayments.
Interest rates hiked to 4% in 15-year high - what it means for your money
Klarna reports to Experian and TransUnion while Laybuy reports to Experian.
Rocio Concha, Which? Director of Policy and Advocacy said: "BNPL options appear at many online checkouts, but our research shows that many users do not realise they are taking on debt or consider the prospect of missing payments, so the Government's proposed new rules and legislation are an important step.
"The Government must ensure there are no delays to introducing these changes and that consumers are given stronger safeguards to protect them and warn about the risks of using BNPL schemes.
"This needs to include greater marketing transparency and information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers."
Read more similar news:
Comments:
comments powered by Disqus
