Consumer champion Martin Lewis has criticized the pace of “painfully slow” progress in regulating the buying industry now and paying later, amid indications that the harshest promised rules are unlikely to take effect until 2024.
Buy Now, Pay Later (BNPL) allows buyers to delay payment for products such as clothing and furniture. This form of credit enjoyed explosive growth during the pandemic, especially among those under 30 and those with tight finances.
But there has been a growing concern among regulators, politicians and consumer groups about how easy it is for people to buy more than they can afford and potentially accumulate large debts. This month, the charity Citizens Advice said buyers were “accumulating loans on top of loans and sinking into increasingly desperate situations.”
In February 2021, the government announced that the Financial Conduct Authority would have powers to control the multi-billion pound sector, which in the UK is dominated by companies such as Klarna, Clearpay and Laybuy. This will give consumers more protection and more rights; for example, all businesses will need to perform proper pre-loan affordability checks and ensure that customers receive fair treatment if they have difficulty paying.
The government on Monday offered an update on the new rules, but some commentators expressed frustration with the seemingly long timetable for the reforms.
The Treasury said the government will publish a consultation on a draft legislation “by the end of this year” and that it would aim to present secondary legislation to parliament in mid-2023.
After that, the FCA will have to consult its rules for the sector, which prompted an industry informant to say, “We probably won’t see anything in law until 2024.” The government is believed to accept that early 2024 may be more realistic than 2023.
Treasury indicated that the timing of the reforms was due to the “complexity” of the regulations. Ministers also intend to extend the rules to cover other forms of unsecured short-term credit, such as those used to pay for dental work.
In response to the announcement, Martin Lewis, founder of MoneySavingExpert.com, said: “The pace of progress is painfully slow. for the frustration of the time it takes. “
He said that almost two years ago his organization sounded the alarm about the rapid growth of BNPL and called for urgent regulation. “However, these protections will not yet be in place for the economically bleak winter to come.”
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Gary Rohloff, co-founder and CEO of BNPL Laybuy, said he supported the government’s approach and would work closely with the FCA in the next steps. “We have always been in favor of a proportionate regulatory model that reflects the low risk of BNPL, supports small e-commerce businesses, and sets high industry-wide standards,” he said.