UK announces plans for stricter BNPL rules
OpenBankingExpo | News
20 Jun 2022
The UK government has announced today it plans tougher regulation of interest-free Buy Now, Pay Later (BNPL) services to improve protections for consumers.
The announcement follows on from a broad consultation, which closed in January, as a response to raised concerns over a lack of consumer protections, and comes at a moment of a worsening economic outlook and growing cost of living crisis. The BNPL industry has been criticised for encouraging users to take out debt without understanding the product or having the means to repay.
Under the government’s new proposals, BNPL lenders will need to be approved by the Financial Conduct Authority (FCA) and will be required to perform affordability checks to ensure consumers have adequate financial resources to manage loans repayments.
Bigger scope
Adverts targeting consumers are also in the scope of the government’s plan: financial promotion rules will be amended so as to eradicate misleading ads and allow consumers to take complaints to the Financial Ombudsman Service.
A new joined-up approach to the BNPL will be welcomed by providers who have acted in advance of expected rules. Some BNPL providers, including Klarna, have begun voluntarily providing information to UK credit agencies.
The government also said it expects to publish a consultation on the draft legislation towards the end of this year and aims to bring forth secondary legislation by the middle of 2023. The FCA would then consult on rules for the BNPL sector.
The announcement comes at a moment of rapid growth in the BNPL market, with some forecasts suggesting the industry will reach a $4 trillion valuation by 2030.
On 12 July Open Banking Expo will be hosting an exclusive half-day Symposium to offer industry insight on the future of BNPL market consolidation, regulation, consumer protection and customer experience. Learn more and book here.