UK government sets out BNPL regulation plans

The UK government has outlined a draft legislation that looks to regulate ‘buy now, pay later’ (BNPL) credit after it determined the sector could be harmful to consumers.

Currently, BNPL remains largely unregulated in the region, offering interest-free short-term loans on a range of products without thorough affordability checks.

The new regulations come as the UK continues to face a cost-of-living crisis, causing further concerns that struggling consumers would turn to BNPL in order to alleviate stress around payment, potentially causing more unaffordable debt.

If agreed upon, the legislation will hand the Financial Conduct Authority (FCA) power to authorise, monitor and audit BNPL operators.

It will also allow customers to take any complaints to the Financial Ombudsman Service.

While the government’s intentions were initially outlined in a consultation in 2021, in 2022 it was confirmed that certain legislations were to go into effect in line with stakeholder views on the scale and nature of the market to ensure proportionate regulation.

The FCA already began making steps last year, stating their concerns around the payment method directly to companies and informing BNPL firms on how to approach customers fairly.

The government said that once it has considered any necessary changes to the draft legislation, it will publish the key milestones for regulation, which will later be laid down during the course of 2023.