The Treasury has announced new plans to strengthen the regulation of buy now pay later (BNPL) finance products.

Lenders will be required to carry out affordability checks, ensuring loans are affordable for consumers, as well as amend financial promotion rules to ensure BNPL advertisements are fair, clear, and not misleading.

BNPL credit agreements allow consumers to spread the full cost of a purchase over time although people do not currently have the usual full range of borrower protections when taking out this type of loan, while they are also rapidly increasing in popularity – resulting in a “potential risk of harm” to consumers, the Treasury stated.

Under the plans, lenders offering a BNPL product would need to be approved by the FCA, and borrowers will also be able to take a complaint to the Financial Ombudsman Service (FOS).

Economic Secretary to the Treasury, John Glen, said: “BNPL can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.

“By holding BNPL to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”

The Treasury’s announcement sets out its proposals for regulation of the sector and revealed it will publish a consultation on draft legislation toward the end of this year. Following this, the government is aiming to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

However, CEO and co-founder of Creditspring, Neil Kadagathur, criticised the length of time that the regulation is expected to take to be implemented across the sector.

“While the proposed regulations are a welcome step forward, we simply cannot wait that long to regulate the BNPL sector,” commented Kadagathur. “There is chronic miseducation about BNPL – one in seven UK adults thinks it’s impossible to get into debt using BNPL and a third are unaware that it’s even a form of borrowing and debt.

“This, combined with the cost-of-living crisis which we know is pushing more people into borrowing, is unsafe and unsustainable, and is guaranteed to damage the long-term financial health of millions of UK borrowers.

“In lieu of immediate regulation, the onus falls to lenders to ensure they are lending safely and protecting borrowers by not providing more credit than an individual can safely afford to repay.”

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