Buy now, pay later to be regulated in the UK – TechCrunch

by Jeremy

Following a government review, the U.K.’s financial services regulator will be instructed to regulate the buy now, pay later industry made famous by companies such as Klarna and AfterPay (known as Clearpay in the U.K.). Further consultation with the industry is underway, and then, when parliamentary time allows, new laws regulating buy now, pay later will be passed. This will see the Financial Conduct Authority (FCA) asked to bring in stricter controls for an interest-free discount now, pay later agreements, including firms being asked to undertake more comprehensive affordability checks before lending.

Ensuring customers are treated fairly, “particularly those who are vulnerable or struggling with repayments”. Until now, because the industry has been unregulated since it falls outside of other interest-bearing credit products, such as credit cards, consumers have been left with little formal recourse when things go wrong.

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“Many consumers do not view interest-free buy-now-pay-later as a form of credit, so do not apply the same level of scrutiny, and checks undertaken by providers tend to focus on the risk for the firm rather than how affordable it is for the customer,” says the U.K. Treasury. The Review, undertaken by the FCA’s Christopher Woolard, also rightfully highlights the issue of credit checks and the lack of visibility between lenders. “Although the average transaction tends to be relatively low, shoppers can take out multiple agreements with different providers – and the Review finds it would be relatively easy to accrue around £1,000 of debt that credit reference agencies and mainstream lenders cannot see.

Notes the Treasury. The Review also estimates that buy now, pay later in the U.K. is worth £2.7 billion ($3.7 billion), with 5 million people USING buy now, pay later since the pandemic-induced boom in online shopping, with many already in arrears from other forms of credit. Up until now, interest-free buy now, pay later offered by retailers has fallen outside of U.K. regulation designed to protect consumers from credit-based financial products, something Alice Tapper, a financial campaigner in the U.K. who last June started the #regulateBuyNowPayLater campaign, previously told me, is “a classic case of regulation not keeping up with tech giants”.

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