From Wednesday, shoppers using Buy Now Pay Later (BNPL) services will face stricter affordability checks as new rules force lenders to seek regulator approval – a move that campaigners say could push some of the most vulnerable towards loan sharks.
Providers such as Klarna and Clearpay, which have built vast businesses on interest-free instalments, must now be authorised by the Financial Conduct Authority (FCA), bringing them more into line with credit card firms and banks. The long-criticised sector, described by campaigners as an unregulated “Wild West”, will now require lenders to run instant affordability tests on each transaction. If a shopper fails, the purchase is blocked.
“New BNPL rules require lender authorisation, giving shoppers stronger rights but risking loan rejections for some.”
“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,” said Kate Pender, chief executive of not-for-profit Fair4All Finance, which promotes fair and accessible financial services. “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.”
Pender estimated that between 10% and 30% of BNPL users would fail the “conservative” checks designed by each lender. The fear is that those shut out will turn to loan sharks – a “thrilled” market, she warned.
Klarna, the UK’s largest BNPL provider, struck a more optimistic note. A spokesman said: “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. Like the [regulator], we expect the new regulation will ultimately lead to growth as it increases consumer trust and confidence.”
The changes offer shoppers stronger protections too. Customers can now refer unresolved complaints to the Financial Ombudsman Service (FOS), which expects to handle about 2,000 cases by the end of March. And anyone buying goods costing more than £100 with BNPL can claim refunds or compensation for faulty items under section 75 – the same right that applies to credit card purchases. Lenders must also provide clear upfront information about what happens if a payment is missed, and direct borrowers to free debt advice if they run into difficulty.
Regulators argue the stricter regime 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 the question remains: for those who now fail the checks, where will they turn?