Buy now pay later (BNPL) is a form of credit allowing you to spread payments across a period of time on an interest free basis.
At present, the BNPL market is unregulated and accordingly does not fall within the remit of the Financial Conduct Authority (FCA). This has rightly been a significant concern for financial experts, as it has left consumers very exposed.
In 2021 the Treasury announced that it was looking at the BNPL market and that it would regulating it. It has this week set out its plans (i.e., what the new rules for the BNPL schemes will be).
The key new rules are as follows:
FCA Approval
All BNPL schemes will need to be approved by the FCA, which is great news for the consumer as this will provide a great deal of protection and redress.
Affordability checks
At present BNPL schemes can lend money without making any enquiries about affordability. This can cause consumers to overstretch themselves financially, and therefore to fall into spiralling debt.
Under the new proposed rules, the BNPL schemes will have to implement affordability tests.
Advertising crack down
BNPL Schemes widely advertise their services. Under the new proposed rules, those adverts must be fair, clear and not be misleading.
Financial Ombudsman
At present, consumers have no free right of redress if they have cause to complain about a BNPL scheme, as the Financial Ombudsman Service (FOS) has no jurisdiction. Under the new rules, FOS will have jurisdiction to hear complaints about BNPL schemes, which is great news for the consumer.
Section 75
My favourite subject! The Government’s view is also that Section 75 protection should apply for BNPL transactions for goods which cost between £100 and £30,000 (as is the threshold with all other credit products). This means you will be able to make a claim with your BNPL scheme if something goes wrong, such as your parcel going missing, or receiving a faulty product.
The bad news
These new changes will not be coming into force any time soon. Government has announced that draft legislation will be published towards the end of this year, followed by secondary legislation by mid-2023, after which the FCA will run a consultation.
