From Wednesday, shoppers using Buy Now Pay Later services have stronger rights – but some will be refused loans, as lenders must now have regulator approval to operate.
The new rules, which come into effect immediately, require providers such as Klarna and Clearpay to be authorised by the Financial Conduct Authority (FCA), bringing them more in line with credit card providers and banks offering loans. Customers can now refer unresolved complaints to the Financial Ombudsman Service (FOS) for independent adjudication, which expects to deal with about 2,000 cases by the end of March. And consumers can claim refunds and compensation for faulty goods costing more than £100 from the BNPL provider under section 75, as is already the case with items bought on a credit card.
“New BNPL rules give shoppers refund rights but may block 10-30% of users, warns Fair4All Finance.”
But for some, the reforms will mean being blocked from buying on credit. Shoppers must pass an instant and automatic test that they can repay the loan, otherwise the purchase via BNPL will be blocked. Borrowers must also get clear upfront information about the loan, such as what happens if a payment is missed, and be directed to free debt advice if they are in financial difficulty.
Campaigners have described the wider sector as an unregulated Wild West. Now, regulators say stricter regulation will prevent people from splashing out on something unaffordable in a few clicks, taking on too much debt and being caught out by late payment fees.
But Kate Pender, chief executive of not-for-profit Fair4All Finance, which promotes fair and accessible financial services, estimated 10% to 30% of BNPL users would fail "conservative" affordability checks, which are designed by each lender. This could leave many unable to buy the essentials they needed. "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." Loan sharks, she told BBC News, would be "thrilled at the prospect", with younger people or those who had repayment issues in the past among those more likely to be rejected.
BNPL has proved particularly popular with 18 to 24-year-olds, although it has widespread use among all age groups. Many debt charities have welcomed the changes, which they say have come after years of delay. They are still urging people to pause before buying anything via BNPL.