Major Buy Now, Pay Later update for millions as huge rule change to protect shoppers will happen within months
HUGE changes to Buy Now, Pay Later rules that will protect shoppers are set to kick in within months under major new plans by the government, The Sun can reveal.
The new Labour government has confirmed that it intends to legislate to bring the Buy Now, Pay Later (BNPL) sector under the City watchdog’s rule by early 2025
This would mean the regulation would kick in in early 2026.
Proposals to regulate BNPL products were first touted in 2021, but have been repeatedly delayed.
We revealed earlier this year that the previous government had shelved the plans over fears that it would drive BNPL firms out of the market during a cost of living crisis.
But the lack of regulation around BNPL is bad news for shoppers as it means these firms don’t have to follow the same rules as major credit lenders and customers aren’t protected if things go wrong.
However, in an exclusive interview, economic secretary to the Treasury Tulip Siddiq told The Sun that the Government has now finalised its “bespoke” plans and intends to pass the legislation “as soon as possible” in early 2025.
The plans will bring the products under FCA regulation while ensuring they also adhere to a large proportion of the Consumer Credit Act and Section 75, which give shoppers various rights.
The Treasury will run a short six-week consultation ending November 29 to iron out any final changes with stakeholders.
This would enable them to pass the legislation early in the New Year.
The City watchdog, the Financial Conduct Authority (FCA), will then have to run its own short consultation.
“The whole government is really behind this policy – the chancellor is really keen on it – because we don’t want a situation where people are trying to manage their debt and end up making it worse, which is what’s happening now,” Ms Siddiq said.
“But, we don’t want to get rid of BNPL, as there is a need in the market for it.”
What will the new rules mean for shoppers?
If a product or firm is regulated, it means that customers are covered by certain protections if they are treated unfairly or something goes wrong with their product or service.
We understand the current plans will mean the following:
Firms will have to operate in consumers’ best interests – or face FCA enforcement action
This means firms will have to be clear and transparent about any late fees, interest, or if they could affect customers’ credit ratings and how.
They should also signpost customers towards debt help in any correspondence.
“Firms will be under the supervision of the FCA who can bring enforcement action [against them] if we feel they are not treating consumers right or don’t have the consumers’ best interests at heart,” Ms Siddiq told The Sun.
Firms will have to carry out strict affordability checks
Ms Siddiq added that affordability checks will be the “number one” thing the FCA will be supervising.
Banks, for example, must review customers’ credit histories and financial situations to ensure they aren’t lending more money than they can afford.
But BNPL providers aren’t currently required to carry out such stringent checks, although some firms, like Klarna, have introduced them voluntarily.
Shoppers will be able to complain to the Financial Ombudsman Service (FOS) if they feel they’ve been treated unfairly
Consumers who deal with regulated financial firms are protected by the FOS, which settles disputes between companies and customers, if things go wrong.
But BNPL users can’t take complaints to the FOS if they have an issue.
“This supervision means there are certain rights consumers will have in terms of referring a complaint to the Financial Ombudsman Service (FOS), which you can’t do at the moment,” Ms Siddiq explained.
Firms will largely have to adhere to the Consumer Credit Act
Consumer credit in the UK is regulated by the Consumer Credit Act, which means these firms have to adhere to certain rules.
For example, firms are required to provide certain information documents and must advertise their products in a certain way.
Ms Siddiq said BNPL firms will largely have to follow these rules.
However, it is understood the Treasury has created bespoke plans to remove certain requirements around interest rates, as this doesn’t apply to BNPL firms.
It has also removed certain requirements around sending paper forms as BNPL is largely online-based.
Number of people relying on BNPL is growing
Image: Economic secretary to the Treasury Tulip Siddiq speaks to Citizens Advice workers about BNPL
By Laura Purkess, consumer features editor and consumer champion
I was invited to join City minister Tulip Siddiq in speaking to Citizens Advice staff at a branch in Southwark, London, about Buy Now Pay Later and I was blown away by how passionately the workers wanted to get this regulation over the line.
These workers hear day in, day out from people who have spiralled into debt that has followed them around for months or years after getting accepted for a BNPL product “in seconds”.
And they said some of the worst actors are sending people threatening letters with no explanation of where they can get proper debt help.
Some people are coming into branches with a pile of letters they’re too scared to open.
One staff member told me the number of people who rely on BNPL for basic living costs is clearly rising over time – but it’s those who are most vulnerable who are turning to it and ending up in an even worse situation.
“The majority of our clients are very vulnerable, English is not their first language, they’re not ‘offsite ‘au fait’ with this kind of thing, and they end up in a lot of trouble,” one worker told me.
“At the moment, if we hit a wall with a firm, we can’t direct them to anywhere else, we can’t point them to the FOS, that’s the end of the line.
“The sooner these regulations come in the better.”
Shoppers will be able to return items for a full refund if they are faulty or were mis-sold
The new plans will also bring BNPL products under Section 75 – a type of protection for shoppers which means they can return faulty items within a certain timeframe.
Currently, as BNPL products don’t have this protection applied to them, shoppers may not be able to get a refund or replacement of broken or damaged items bought this way.
Dame Clare Moriarty, chief executive of Citizens Advice, said of the plans: “We’ve long called for regulating the BNPL market and are glad to see the government making this a priority. We know the difference this can make to so many people’s lives.
“The FCA must act swiftly to set rules that protect consumers from unaffordable borrowing once the necessary legislation is in place.”
Sheldon Mills, executive director for consumers and competition at the FCA, added: “We welcome the government’s consultation on the regulation of buy now pay later products.
“We’re already preparing and will consult on the rules firms will need to follow once the law is changed. We will ensure consumers are appropriately protected while enabling firms to innovate and grow.’
What will it mean for people who rely on BNPL?
Like the previous government, Ms Siddiq is keen to ensure BNPL remains a viable payment method for people who need it.
Instead, the hope is that it will prevent people from taking on more than they can realistically afford to pay back.
“I’m not that concerned [about restricting access to BNPL] as I think what they will probably do is not borrow at such a high level,” Ms Siddiq told The Sun.
“If the firm carries out affordability checks and look at their credit ratings, they will say they can still get some form of credit, but they might also be able to come up with a repayment plan to pay it back.”
‘A real opportunity to provide protection’
Ms Siddiq has been working on BNPL regulation plans for several years and has regularly called for the rules to be implemented from the Opposition bench.
“I started looking into it a bit more and asking the government if they would do something, and they sort of paid lip service but didn’t do anything and they kept pushing it back,” she said.
So when the Labour Party won the general election in July, she decided to make it a top priority.
The plan was to confirm the plans within Labour’s first 100 days in government – a deadline they have just about missed.
Ms Siddiq was keen to get it right and has spent the past few weeks – and years – speaking with major players in the BNPL market to make sure the plans would work.
“I realised if we did win the election, this was a real opportunity to provide some protection for consumers and my own constituents,” she said.
“If you are using a BNPL product, you are probably struggling, you don’t use it on a whim, so for me it was about giving those people protection and rights.”
Consumer champion Martin Lewis has since said: “The last Chancellor promised to regulate, then the tumbleweed rolled as he went silent, so I am delighted the new Government has quickly restarted the process.
“Too many are in trouble with multiple BNPL repayments, leading to debt-chasing and credit file damage.
“Regulation will mean firms must be overt that it’s a debt, have proper affordability rules, and will crucially let people go to the ombudsman if things go wrong.”
If you’re struggling with debt, there is plenty of free help available.
You can contact Citizens Advice’s advice line on 0800 144 8848 or speak to someone via chat on its website.
Charity Turn2Us, which helps people in financial need, can be contacted for free on 0808 802 2000 Monday to Friday between 9am and 5.30pm.
Protection is needed urgently for shoppers
By Laura Purkess, consumer features editor and consumer champion
It’s great news that the government has committed to getting regulation over the line by early next year.
It’s been years since the City watchdog, the FCA, first proposed regulating these products and a number of consultations have run since, but it’s proven trickier than it sounded to get the plans off the ground.
The sector is in desperate need of regulation to make sure the millions of households who use it have full protection if things go wrong.
The new Labour Government has long pledged that it would be much tougher on these firms than its predecessor and would get regulation through as a priority.
This announcement suggests this is not just lip service, and hopefully the Government continues to push ahead with this with the same enthusiasm over the next few months.