By 2026, new regulations for “Buy Now, Pay Later” (BNPL) services will introduce enhanced financial protections for consumers.
‘Buy Now Pay Later’ Shoppers to Receive Stronger Protections by 2026
By Arezki AMIRI
Published on 17 October 2024 18:40
Consumers using 'Buy Now Pay Later' (BNPL) will be more secure in their usage of these platforms as new laws will be implemented in 2026 that will protect consumers. One of the objectives of these measures is to be able to bring the operations of BNPL companies under the framework of the Financial Conduct Authority (FCA), ensuring borrowers receive the same safeguards as those using traditional credit products.
As it stands, many people have had access to spreading their repayment across many months since the inception of BNPL. However, there is a need for the safety systems that exist for other types of credit to be in place, in order to mitigate the risk of overextension. As a result, many people appear to accumulate such debt and do not fully comprehend the scope of the risk involved here.
Government Consultation on Buy Now Pay Later Regulation
The government has launched a consultation to establish clear guidelines for BNPL providers. These changes would introduce protections such as affordability checks, ensuring shoppers can afford repayments before entering a loan agreement. Companies will also be required to provide clear and accessible information on loan terms to prevent consumers from unknowingly taking on excessive debt.
Tulip Siddiq, the Economic Secretary to the Treasury, emphasized that the new rules will offer consumers the same protections found in other credit products, while still fostering innovation within the sector. “Our approach will give shoppers access to key protections while providing the sector with the certainty it needs to innovate and grow,” Siddiq stated.
A key element of the proposal is empowering the FCA to impose rules on affordability assessments. BNPL firms will need to verify that consumers can handle the financial burden before extending credit. In addition, companies must offer clear information about the risks of late repayments.
The regulations will also extend the Consumer Credit Act's Section 75 to BNPL purchases. This allows consumers to claim refunds directly from their lender in case of faulty or undelivered goods and access the Financial Ombudsman Service (FOS) to address disputes.
Support from Consumer Advocates and Industry Leaders
Consumer groups have long called for stricter regulation of BNPL services. Rocio Concha, director of policy at Which?, highlighted that many customers are unaware they are accruing debt or the consequences of missed payments.
She stressed the importance of transparency and affordability checks, adding, “We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.”
Industry players also back these moves. Michael Saadat, public policy head at Clearpay, stated the company's ongoing support for fit-for-purpose regulations that balance innovation with consumer protection.
Concerns Over Rising BNPL Debt
According to popular organisations like Citizens Advice and StepChange Debt Charity, many people have experienced losses and are now in search for assistance due to debts incurred as a result of BNPL.
Dame Clare Moriarty, Citizens Advice CEO, mentioned a rapid rise in the number of clients struggling with mortgages on BNPL, most of whom now use food vouchers as emergency assistance.
She appealed to the FCA to take the correct steps in curbing the lending of unaffordable debts by introducing regulations within a short time frame.
Mr Richard Lane, chief client officer at StepChange also expressed a concern on the increasing temptation at terminal patience for aggressive marketing leading to excessive borrowing. He urged BNPL providers to be stringent in their affordability assessments, especially in the current crisis of living costs.
There will be a risk of exposure to the authorities until the 29th of November 2024 as draft rules are not likely to be published until early 2025. They consider the transitional provisions loaded deadlines up to 2026 when for hundreds of thousands of UK residents most of whom are considered as cost prudent, will create protection against the risk of becoming overindebted.