MILLIONS of shoppers might be affected by new buy now, pay later regulations submit through the Government.
The Treasury has organized intends to firm up rules around BNPL in a bid to protect consumers.
The proposed rules includes:
- BNPL providers need to be approved by the regulator
- Lenders need to ensure loans are affordable
- Advertisements must be fair, clear and not misleading
- Other short-term interest-free credit to be included
- Consumers so that you can complain to the Ombudsman
It uses Amazon announced it would be starting its own BNPL service, and newbie bank Zopa launched a buy now, pay later product earlier this year.
Buy now, pay later is a type of borrowing whereby you are making a purchase but delay paying for it.
BNPL providers like Klarna, Clearpay and Laybuy, let customers purchase their shopping in interest-freemonthly instalments to spread the price.
It's widely available at many online stores now including Asos, H&M and much more.
Payment is created in instalments over an agreed time period, usually Thirty days.
But concerns have been raised about the amount of debt that people are racking up in this manner.
An estimated 8 million adults in the UK owe money on BNPL, according to reference agency Credit Karma.
An average of 538 per person is owed on BNPL, with total debt standing at a hefty 4billion.
Ciizens Advice recently warned that nearly two in five BNPL shoppers have borrowed profit order to meet your loan payments.
More protection is needed
The Treasury has today raised concerns that buy now, pay later doesn't provide the same protections to shoppers as other kinds of borrowing.
For example, when you buy a product on the standard credit card, you are protected by Section 75 of the Credit Act and through chargeback, each of which can help you get your money-back should you don't receive your item or it is faulty.
The Government has stated that BNPL lenders is going to be necessary to execute affordability checks to ensure loans are affordable for customers.
It also really wants to overhaul promotion rules to ensure BNPL adverts are "fair, clear and not misleading".
It said lenders offering BNPL services will have to be authorized by the regulator, and customers will be able to take complaints to the Ombudsman.
John Glen, economic secretary towards the Treasury, said: "Buy now pay later could be a helpful method to manage you finances, but we need to ensure that people can embrace services and services using the appropriate protections in position.
"By holding BNPL towards the high standards we expect of other loans and types of credit, we're protecting consumers and fostering the safe development of this innovative market in the united kingdom."
What happens next?
The Government will publish a consultation on draft legislation later this year, and can lay out its plans by mid-2023.
At this point the Financial Conduct Authority, the regulator, will consult on rules for the sector.
The Treasury said other short-term interest-free credit would be also covered by the rules – including loans to pay for dental work or furniture, for instance.
But there have been some grumbles that the government is not moving fast enough.
Martin Lewis said regulation was "desperately need" but he was frustrated at how long it was taking.
He said: "It's now nearly two years since we raised the alarm about BNPL's explosive growth and called for urgent regulation, yet those protections still won't be in place for the financially bleak winter coming."
Dame Clare Moriarty, chief executive of Citizens Advice, said:
Every day spent awaiting regulation is yet another day that shoppers are left unprotected and ill informed. We have seen a shopper threatened with debt collectors after splitting the payment of the t-shirt and, more recently, a worrying two in five BNPL customers borrowing money to create repayments.
“The government's proposed rules will give you vital protection to many, however it must turbo-charge these plans.”
Should I use BNPL?
The UK's BNPL market is worth 6 billion and 20million people already use this way of shopping.
And like any other form of credit, BNPL is safe to use as long while you achieve this responsibly.
That means clearing balance entirely and never falling into arrears.
Debt ought to always be a final resort in an effort to pay for anything, and you ought to never take on a lot more than you really can afford to repay.
Concerns around BNPL have centred round the credit report checks that companies undertake before proclaiming to offer you the loans.
With a standard loan or credit card, lenders to some "hard check", which shows in your credit rating so others can see what credit you've requested.
BNPL firms have typically only completed "soft checks" which are not as stringent, and mean shoppers could accrue loans having a number of providers, that could mean their borrowing gets unmanageable.
This month, some BNPL firms started to report transactions on your credit file.
Citizens Advice is among the organisations which have been calling for more regulation on the industry.
Millie Harris, debt adviser at Citizens Advice East Devon, said:
“What scares me most is how easily people can slip into using Buy Now Pay Later.
"They are available to rely on it much more quickly than other kinds of credit. It's just several clicks in a checkout.
"All too often which means people don't realise how serious it's; that it is credit and there are consequences if they don't repay it.”
If you are worried about debt, speak to your lenders as soon as possible – they might be able to assist you to come up with a more affordable repayment schedule.
Debt advice charities such asStepChange,Citizens AdviceorNational Debtlinemay have the ability to provide you with guidance.