(Reuters) -Britain is to regulate buy now, pay later (BNPL) lenders from next year in a shift the government said would give shoppers stronger rights and more protections from the “wild west” of unregulated borrowing.
The move, which comes alongside a wider set of changes to legislation for regulating consumer credit, will mean BNPL is treated like other credit products, the UK finance ministry said in a statement on Monday.
Buy now, pay later companies are largely unregulated and typically offer on-the-spot short-term loans that spread consumer payments for retail products over multiple instalments.
The new rules will require BNPL providers such as Klarna and Clearpay to carry out checks on whether customers can afford to take on the debt, and give them faster access to refunds, the finance ministry said.
More than 10 million people in the UK use BNPL. The government says that when used responsibly it can be a useful tool to help people manage their finances.
Consumer groups, however, have long raised concerns that cash-strapped shoppers are getting into debt by using BNPL to buy food or pay energy bills.
“From next year, BNPL firms will need to follow consistent standards — so shoppers will know exactly what they’re signing up to when they opt to break up payments, whether they can afford it, and how to get help when things go wrong,” the finance ministry said.
Economic Secretary to the Treasury Emma Reynolds said BNPL had transformed shopping for millions but for too long “operated as a wild west” – leaving consumers exposed.
The previous UK government announced draft plans to regulate the sector in 2023, saying at the time that it posed potential harm to consumers without thorough affordability checks. An extra 2 million people have started using BNPL since 2022, the government said on Monday.
(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes, Kirsten Donovan)
