Government to clamp down on ‘buy now pay later’ services such as Klarna and Clearpay
Fintechs including Klarna and Clearpay providing ‘buy now pay later’ services will face fresh regulation by the Financial Conduct Authority (FCA) after years of wrangling and delays.
New rules will require financial services providers to conduct affordability checks as part of efforts to make banking standards more consistent.
Borrowers will also be able to make complaints to the Financial Ombudsman and will have faster access to refunds.
The UK government is set to unveil the legislation on Monday, with the previous government claiming there were plans to regulate buy now pay later services in 2023.
Plans to regulate the sector were first announced in 2021, with some 11m people using buy now pay later services.
City minister Emma Reynolds said consumers would be better protected as a result of the new rules.
“These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow and create jobs,” Reynolds said.
“Buy now pay later has transformed shopping for millions, but for too long has operated as a wild west — leaving consumers exposed.”
Buy now, pay later regulation to ‘protect consumers’
Responding to the regulatory changes Janine Hirt, Chief Executive of Innovate Finance, the industry body for FinTech, said: “This is good progress for consumers. The area where we believe there is more work to be done is in the way these rules may impact small business growth in the UK.
“We remain concerned that BNPL business finance provided to sole traders will be in scope of the regulatory regime. Specialist small business finance providers, or wholesale trade suppliers, currently offer this but are likely to withdraw such flexible repayment options, reducing sole traders’ access to reliable trade credit products.”
Consumer group Citizens Advice suggested buy now pay later schemes had meant people were becoming unable to pay essential bills.
“We now need to see the FCA act swiftly to set out the strong consumer safeguards that are so urgently required,” said Tom MacInnes, director of policy at Citizens Advice.
A spokesperson for Klarna, one of the biggest suppliers of buy now pay later services in the UK, said it welcomed regulation. The firm has been calling for regulation of the sector in recent years.
“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,” he said.
Clearpay said it would support regulation that provides “much-needed innovation in consumer credit” and supports fintechs across the UK.
It comes as a report by the FCA showed that one in ten people were unable to pay essential bills while millions more Brits were using buy now pay later products over the last three years.