Now, the UK government is taking action with new regulations to address the rapidly growing Buy Now Pay Later (BNPL) market. Their interest is in protecting consumers from predatory borrowing practices. Next year, new regulations will be introduced. They will establish uniform terms for BNPL companies and ensure consumers are clear about their financial obligations. The new initiative comes in direct response to a dramatic surge in the use of Buy Now, Pay Later (BNPL). Over the last three years, an additional two million Americans have turned to these financial products.
BNPL lets consumers pay over a short term, like 2–12 weeks or months. And yet according to the UK’s Financial Conduct Authority (FCA), these are the services millions are rushing to. Alarmingly, 40% of lone parents and 35% women aged 25 to 34 have used BNPL products. The government needs to get a handle on rampant illicit spending. And they’re cracking down on misleading advertising to ensure consumers can understand the consequences of their decisions.
Economic secretary to the Treasury, Emma Reynolds admitted BNPL had fundamentally changed the way people shop. She pointed to the dangers posed by it. Instead, the sector has long acted like a “wild west”—failing to protect countless consumers from unaffordable debt.
“For too long, people have been exposed to unaffordable debt from a BNPL sector that has operated in a regulatory grey area” – Tom MacInnes, Citizens Advice
The FCA’s extensive consumer survey revealed sobering trends. Most users don’t understand when they’re taking on debt and don’t consider the risks of being unable to pay on time. Lisa Webb, a consumer policy expert at Which consumer watchdog, said this highlights the need for clearer standards.
“Many users do not realise they are taking on debt or consider the prospect of missing payments” – Lisa Webb, Which?
The new regulations will require BNPL firms to ensure shoppers can afford purchases and provide information on how to seek assistance if needed. This move is monumental for the millions who choose to use BNPL services for their shopping needs.
Reynolds went into more detail about the government’s pledge to provide a safer environment so consumers can live their lives.
“These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs” – Emma Reynolds
Industry representatives have welcomed the proposed regulations. As a spokesperson from Klarna pointed out, these are huge strides for consumer protection and innovation.
“It’s good to see progress on regulation, and we look forward to working with the FCA on rules to protect consumers and encourage innovation” – Klarna spokesman