UK Authorities Crack Down on Buy Now Pay Later Sector to Protect Brits

Prominent Buy Now Pay Later (BNPL) shopping platforms like Klarna may face more stringent regulation under recent government recommendations published in the United Kingdom. 

The Treasury said that (BNPL) companies will be subject to the supervision of the Financial Conduct Authority (FCA), which oversees the financial services sector in the United Kingdom. 

According to the government, such organizations will have to undergo affordability inspections before lending to borrowers, and users will be able to forward concerns to the United Kingdom’s financial ombudsman.

BNPL goods are used as a credit card substitute. The approach grew popular during the COVID-19 crisis as consumers resorted to internet shopping thanks amid lockdowns. 

These services, made popular by the Swedish company Klarna, let customers pay for items over a span of interest-free payments. But Klarna is not alone,  Afterpay, which runs Clearpay in the United Kingdom, and Laybuy are other promising entrants in the BNPL market  

Consumer organizations have cautioned that some consumers—more so young buyers, might be duped into a debt cycle.  For instance, The consumer & product review firm in the United Kingdom is concerned that BNPL goods would induce individuals to spend beyond their financial strength.

According to research by the FCA’s Christopher Woolard, the BNPL economy in the United Kingdom is worth £2.7 billion, with 5 million Britons using this method since the coronavirus outbreak. Meanwhile, one out of every ten BNPL users of a large bank is already in debt. 

“Buy-now, pay-later arrangements may be a good way to manage your money, but consumers must be safeguarded as this product grows more popular,” says  John Glen, the Treasury’s economic secretary. 

“By regulating the sector, we’re ensuring that consumers get fair treatment and that they’re only presented deals within their financial strength – just as with other loans.” 

The Bottom Line

Hopefully, the new regulations will have an impact on the rising debt situation, and help consumers make the most of this alternative shopping method. However, users must be smart when using these services. 

By being aware of the terms and conditions of service, and any interest rates that may be lurking in the fine print, consumers can avoid problematic situations with buy-now-pay-later providers.

Author bioPayment industry guru Taylor Cole is a passionate payments expert who understands the best merchant service provider for small businesses. He also writes non-fiction on subjects ranging from personal finance to stocks to cryptopay. He enjoys eating pie with ice cream on his backyard porch, as should all right-thinking people.