The United Kingdom government is tightening rules on buy now, pay later (BNPL) loans to try to prevent borrowers from taking on unaffordable debts.
After months of consultations, the Treasury confirmed that lenders will be required to carry out affordability checks on customers and ensure advertisements are fair. The Financial Conduct Authority will need to approve providers, and borrowers can take complaints to the Financial Ombudsman Service.
The rules will take time to change. The government aims to lay secondary legislation by mid-2023, after which the FCA will consult on its regulation. It comes as companies from Apple Inc. to Klarna Bank AB race to offer shoppers the chance to pay for small items in installments, which are interest-free if they pay on time.
“By holding buy now, pay later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the U.K.,” said John Glen, economic secretary to the Treasury.
The government also confirmed that other forms of short-term interest-free credit will be required to comply with the same rules. That includes paying for dental work or larger items like furniture. With inflation at a 40-year high, U.K. regulators told lenders of all forms they need to offer more support to struggling borrowers.
BNPL among the Top 2000
45.7% of Digital Commerce 360’s Top 1000 online retailers offered a BNPL option in 2021. That’s up from 28.2% in 2020. The Top 1000 are North America’s leading online retailers in order of most web sales. And 7.4% offered two or more BNPL options, an increase from only 1% in 2020.
Small- to mid-sized retailers are also offering BNPL, with 32.9% of Digital Commerce 360’s Next 1000 offering at least one BNPL option. The Next 1000 lists retailers ranked Nos. 1,001 to 2,000 by online sales.
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