August 18, 2023

Buy Now Regulate Later?

The UK government announced that they wanted to bring regulation to the Buy Now Pay Later market. We analyse the proposal and discuss what it could mean for consumers.

36% of UK residents have already used Buy Now Pay Later (BNPL) services in the past. This figure is only expected to grow, with the market expected to reach over £550 billion globally in 2025. But with big regulatory changes on the horizon, what can we expect from BNPL firms in the UK?

The UK government announced in 2021 that it would bring unregulated BNPL firms under FCA regulation . With its massive growth in popularity, consumers need greater protection in this area. Currently, customers cannot bring complaints about BNPL firms to the Financial Ombudsman Service. Despite this, the FOS has already reported an increase of 36% in complaints about these firms. So, what is the government doing to address this issue?

Breaking down the legislation

The main aim of the proposed regulation is to close a loophole that BNPL firms are currently using to avoid regulation. At the moment, if a loan is interest free and is repaid within 12 months or in less than 12 repayments, it is not regulated by the FCA.

The government intends to bring third party lenders, who currently operate using these guidelines, under FCA regulation. All third party lenders will have to conform to the new regulation if they want to continue to operate in the UK. The hope is to bring greater protection to consumers through enhanced lending practices. As well as allowing consumers access to the FOS.

Why hasn’t the legislation come into force yet?

Recent reports suggest that the government may be looking to delay regulation of the sector. They fear that it might affect the UK’s position on the global BNPL market and scare away business. But, FCA CEO, Nikhil Rathi, said he does not “buy the argument” the government has put forward. Two of the largest firms in the sector, Klarna and Clearpay, have stated their support of proportionate regulation.

So what next?

Regardless of when the regulation comes into force, it is important for BNPL firms to anticipate future changes in regulation and adjust their operations.

CourtCorrect’s AI-powered Case Insights provides analysis of both internal and external complaints. This will ensure BNPL firms are compliant with any future regulation. The system already follows the guidelines set by the FCA’s Consumer Duty.

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