The “buy now, pay later” industry has been gaining popularity in recent years, allowing consumers to make purchases and pay off the debt at a later date. However, concerns have been raised about the lack of regulation in this industry and the potential risks it poses to consumers, especially younger ones. The British government, under the new Labour leadership, is now looking to set out updated plans to regulate this industry and protect consumers.
The delay in regulating the BNPL industry has been a cause for concern, with the government first setting out plans to regulate the sector in 2021. A review conducted by former Financial Conduct Authority boss Christopher Woolard found that more than one in 10 BNPL customers were in arrears. This highlights the need for regulation to protect consumers and ensure that the sector operates in a way that is fair and transparent.
Buy Now, Pay Later plans are flexible credit arrangements that enable consumers to make purchases and defer payment to a later date. While most plans charge customers a third of the purchase value upfront and the remaining payments over the following two months, some BNPL firms also charge missed payment fees. This lack of standardized practices across the industry raises concerns about consumer debt levels and the ability of consumers, particularly young ones, to manage their finances responsibly.
Campaigners and industry experts have been calling for regulation in the BNPL industry to address the growing concerns about consumer debt and financial stability. Gerald Chappell, CEO of online lending firm Abound, has raised concerns about customers racking up significant debt from multiple BNPL providers. The lack of uniformity in industry practices and the potential for consumers to accumulate debt that they cannot afford underscore the need for government intervention to protect consumers.
Under the new Labour government, there is a renewed focus on regulating the BNPL industry to safeguard consumers and provide certainty for the sector. The U.K. Treasury has indicated that updated plans will be set out shortly to address the concerns surrounding BNPL practices. The government aims to work closely with all stakeholders to ensure that the regulations put in place are effective and enforceable.
Major BNPL firms like Clearpay, Klarna, and Block have expressed support for regulation in the industry to protect consumers and promote innovation in consumer credit. While concerns have been raised about the potential impact of regulation on the industry, particularly in driving consumers towards more expensive credit options, there is a recognition among industry players that regulation is necessary to establish high industry standards and protect consumers.
The BNPL industry is largely unregulated not just in the U.K., but globally. In the United States, the Consumer Financial Protection Bureau has introduced rules to ensure that BNPL companies offer the same protections to consumers as credit card users. This move reflects a broader trend towards regulating the BNPL industry to address the risks associated with unsecured credit and consumer debt.
The need for regulation in the BNPL industry is clear, given the concerns surrounding consumer debt levels and financial stability. The British government’s plans to update regulations in this sector are a step towards protecting consumers and ensuring that the industry operates in a way that is fair, transparent, and sustainable. By working closely with industry stakeholders and implementing effective regulations, the government can address the risks posed by unregulated BNPL practices and promote responsible consumer lending.