Shoppers who have come to rely on Buy Now Pay Later services woke up to a new financial landscape on Wednesday as sweeping regulation took effect. From today, every BNPL lender – including giants Klarna and Clearpay – must be authorised by the Financial Conduct Authority to operate. The change gives consumers stronger rights, including access to refunds for faulty goods costing more than £100 under section 75, and the ability to refer unresolved complaints to the Financial Ombudsman Service, which expects to handle about 2,000 cases by the end of March. But for many, the new rules will mean something far more immediate: rejected transactions.
The regulation requires lenders to run an instant affordability check on each purchase. Kate Pender, chief executive of the not-for-profit Fair4All Finance, which promotes fair and accessible financial services, estimated that 10% to 30% of BNPL users would fail these “conservative” checks. “While regulation is clearly needed and welcomed, our recent research found that nearly half of those likely to be rejected have not missed a BNPL payment,” she said. “The need for credit doesn’t just disappear when you can’t access it and people are often pushed towards more expensive or unregulated alternatives.” She warned of a drift towards loan sharks, whom she described as “thrilled” at the prospect.
“New BNPL rules require FCA authorisation, giving shoppers stronger rights but 10-30% may be blocked, raising loan shark fears.”
Klarna, the UK’s largest BNPL provider, pushed back. “Klarna doesn’t share these concerns because the new rules largely formalise what we already do: we run affordability checks, show costs upfront and report to credit reference agencies,” a spokesman said. “Like the [regulator], we expect the new regulation will ultimately lead to growth as it increases consumer trust and confidence.”
The FCA’s oversight brings BNPL in line with credit card providers and banks. Borrowers must now receive clear upfront information about what happens if they miss a payment, and be directed to free debt advice if they are in difficulty. Regulators say the stricter regime will prevent people from making unaffordable purchases in a few clicks, taking on too much debt and being hit by late fees. For campaigners, the question is whether the cure is worse than the disease – and where those turned away will turn next.