The UK government has launched an eight-week consultation on proposed draft legislation that will see buy now, pay later (BNPL) regulated by the Financial Conduct Authority (FCA).
The new legislation is intended to protect 10 million BNPL customers, as well as giving them more rights.
The government announced its intention to bring currently exempt BNPL products into regulation “in a proportionate way” back in February 2021.
In October the same year, HM Treasury consulted on policy options to deliver regulation, followed by a consultation response in June 2022.
Under plans set out in June last year, the government confirmed that lenders will be required to carry out affordability checks, while borrowers will be able to take a complaint to the Financial Ombudsman Service.
Financial promotion rules will also be amended to ensure BNPL advertisements are “fair, clear, and not misleading”.
Now, interested parties and stakeholders are being invited to respond to the consultation by 11 April 2023.
Among the proposed legislation the government is inviting responses to is the creation of a temporary permissions regime (TPR), which “has been designed to enable firms to transfer into the new regulatory regime before seeking full authorisation at a future date”.
“A TPR will allow firms to continue to operate until they are fully authorised. Without a TPR, an unauthorised firm would have to suspend operations until it had completed the FCA’s authorisation process,” the consultation document stated.
HM Treasury expects the legislation to become law in the UK in 2023.
On Twitter, Andrew Griffith MP, economic secretary to the Treasury, wrote: “Buy-Now Pay-Later can be an easy and helpful way for people to manage their finances, allowing them to spread the cost of a purchase without paying any interest. We want to protect the minority who may end up borrowing more than they can affordably repay.”
He also tweeted: “Together with a recently launched consultation on the reform of the 1974 Consumer Credit Act our aim is to modernise safe access to credit for a digital era.”
At Open Banking Expo UK in London in October 2022, speakers discussed the regulation of BNPL, with Equifax UK chief product and marketing officer Jayadeep Nair, the discussion moderator, noting that an estimated one in four UK consumers use BNPL.
Find out more about the consultation and how to respond here.