The proposed laws follow a review published by former FCA interim CEO Christopher Woolard, which evaluated the £250 billion unsecured credit market
Britain will introduce new rules for buy now, pay later (BNPL) credit after the notoriously unregulated market spiked while consumers struggled during COVID-related lockdowns.
BNPL, which is particularly popular among younger demographics, is offered in the U.K. by companies like Klarna, LayBuy, Openpay (OPY), PayPal and Afterpay’s (APT) Clearpay, making it quick to secure interest-free short-term loans that spread the payment for retail goods.
By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford — the same protections you’d expect with other loans, said John Glen, Britain’s financial services minister.
He added that legislation would be brought in as soon as possible, which would force providers to make affordability checks before lending to a customer.
The proposed laws follow a review published on Tuesday by former Financial Conduct Authority (FCA) interim CEO Christopher Woolard, which evaluated the £250 billion unsecured credit market.
Woolard said retailers could start “putting their own house in order” by doing credit checks on customers and was optimistic that new rules would take effect in “months rather than years.”
His review noted that demand for BNPL products increased in line with COVID-19 restrictions, quadrupling in 2020 to almost £2.7 billion, with five million users added since the beginning of the pandemic.
Significantly, more than one in 10 customers of a major bank using BNPL were already in arrears.
The emergence and expansion of unregulated BNPL products gives consumers a significant alternative to more expensive credit, but this also comes with significant potential for consumer harm, the review said.
Afterpay said it welcomed the review and looked “forward to working with the FCA, the government and stakeholders to build on the consumer protections we already provide to create the applicable regulation for the sector.”