The UK government has finally unveiled its plans to strengthen regulations surrounding buy-now-pay-later services, aiming to provide enhanced consumer protection. These proposals include requirements for providers to conduct consumer checks and obtain approval from the Financial Conduct Authority (FCA). Despite the significance of these changes, the legislation will not come into effect until late 2023.

The decision to introduce these regulations came as a response to concerns raised during a consultation that took place earlier this year. Stakeholders expressed worries about the financing model utilized by BNPL providers and questioned whether sufficient assessments were being conducted to ensure consumers could afford the products they were purchasing under these schemes.

Alongside consumer checks and FCA approval, the proposed regulations will also amend financial promotion rules governing BNPL advertisements. The objective is to make sure that these ads are fair, clear, and not misleading. Additionally, the government plans to allow consumers to file complaints with the Financial Ombudsman Service in order to address any issues they may encounter with BNPL services.

It is important to note that these proposals are distinct from the government’s recent commitment to reform the Consumer Credit Act, which oversees personal loans, including BNPL products. The goal of these reforms is to ensure that the BNPL market operates under the same high standards as other forms of credit and loans.

John Glen, the economic secretary to the Treasury, emphasized the importance of having appropriate protections in place for consumers utilizing BNPL services. While BNPL can be an effective tool for managing finances, it is crucial to establish safeguards to protect consumers. Through subjecting BNPL to the same standards as other financial products, the government aims to promote the safe growth of this innovative market in the UK.

Overall, the UK government’s proposals to tighten BNPL rules showcase its commitment to enhancing consumer protection and fostering responsible growth in the BNPL sector. By implementing these measures, the government aims to ensure that BNPL services are transparent, fair, and offer adequate safeguards to consumers. The introduction of consumer checks, FCA approval, and stricter advertising regulations will all contribute to creating a more secure environment for consumers utilizing BNPL services in the future.

Useful links:
1. FCA’s Press Release on Consumer Credit Changes
2. UK Government’s News on New Restrictions on BNPL Products