New BNPL Rules: Are You Ready to Face Stricter Affordability Checks?
Essential Changes Coming to Buy Now, Pay Later (BNPL) practices in the UK
Starting July 2024, new regulations will require shoppers using Buy Now, Pay Later (BNPL) services to pass stricter affordability checks, potentially limiting access to this form of credit for some consumers. The Financial Conduct Authority (FCA) aims to safeguard users from accumulating overwhelming debt and incurring late payment fees, as many have found it easy to overspend with BNPL.
Nurse Julie Rowbottom highlighted the risk of falling into a debt trap, emphasizing that while BNPL options offer convenience, they can lead to rapid financial strain. With 11 million individuals in the UK having utilized BNPL services recently, the trend of interest-free credit continues to grow, particularly among young adults who often use it for lifestyle and beauty purchases.
Currently, BNPL is unregulated, prompting calls from charities for enhanced consumer protection. Vikki Brownridge, CEO of StepChange Debt Charity, commended the proposed changes as a step towards aligning BNPL with other credit forms. Research shows that users are often twice as likely to borrow for essential bills, raising concerns about financial stability among consumers.
Legislative progress allows the FCA to create frameworks for regulating BNPL. The new rules promise to introduce:
Affordability checks before issuing credit.
Faster access to refunds for consumers.
Clear information regarding cancellation rights and charges.
Recourse to the Financial Ombudsman for complaints, ensuring greater transparency in transactions.
Over a period of 10 years, these regulations are projected to save consumers £1.8 billion while decreasing lender profits by £1.4 billion. The FCA will not impose a singular method for conducting affordability assessments, allowing lenders flexibility in their approaches.
Klarna, a major BNPL provider, expressed support for regulatory measures that protect consumers while fostering innovation in the credit market. However, recent statements from Chancellor Rachel Reeves suggest a reconsideration of financial services regulation, complicating the landscape for BNPL firms as they adapt to upcoming changes.
A temporary regulatory regime will be established before the new rules take effect, ensuring that firms comply with FCA guidelines while transitioning into full compliance. As these regulations unfold, consumers and lenders alike must prepare for a more structured BNPL environment that emphasizes responsible borrowing.