The government has announced this week (20 June) that they are to strengthen regulation around interest free “Buy-Now Pay-Later” credit agreements. Lenders will now be required to ensure loans are affordable, and rules will be amended to ensure advertisements are fair, clear, and not misleading.
Buy-Now Pay-Later credit agreements are a helpful way to manage finances as they allow consumers to spread the purchase cost over time. However, people do not currently have the usual full range of borrower protections when taking out this type of loan, and as they rapidly rise in popularity, there is a potential risk of harm to consumers
New plans set by the government include NFDA suggestions that will require lenders to carry out affordability checks, ensuring loans are affordable to consumers and will amend financial promotion rules to ensure the Buy-Now Pay-Later advertisements are fair, clear and not misleading. Lenders offering this product will need to be approved by the Financial Conduct Authority (FCA), and borrowers will also be able to make a complaint to the Financial Ombudsman Service (FOS).
Economic Secretary to the Treasury, John Glen Said:
"Buy-Now Pay-Later can be a helpful way to manage your finances, but we need to ensure that people can embrace new products and services with the appropriate protections in place.
"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 UK."
The consultation response sets out the government's proposals for regulation of the sector. Given its complexity, the government will publish a consultation on draft legislation toward the end of this year. Following this, the government aims to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.
The announcement forms part of the government's plan to grow the economy and tackle living costs. The Chancellor has provided £37 billion of support to help, including providing the eight million most vulnerable British families with at least £1,200 of direct payments this year – and giving every household right across the UK £400 to help with their energy bills.