MPs launch consultation over Buy Now Pay Later
The government has launched the long-awaited consultation for the regulation of Buy Now, Pay Later (BNPL) firms.
BNPL firms such as Klarna allow users to defer payments post-purchase or pay for bigger purchases in instalments.
The move, which comes two years after the government first agreed to regulate BNPL products, follows research from Forbes which shows that 70 per cent of UK adults are using the payment option as a direct result of the cost-of-living crisis.
It is now consulting on the proposed draft legislation which will bring the payments under regulation of the Financial Conduct Authority (FCA).
The government made the decision to regulate the payment model after the financial watchdog published the Woolard Review, which called for stricter boundaries on BNPL services.
The Review set out how regulation could better support a healthy market for unsecured lending, taking into account the impact of the coronavirus pandemic, changing business models and new developments in unregulated BNPL unsecured lending.
It warned that unregulated BNPL products come with “significant potential for consumer harm” with, at the time, more than one in ten customers of a major bank using the payment service already being in arrears.
The consultation asks for stakeholders’ views on whether the draft legislation effectively delivers the policy positions set out in the government’s original consultation response.
Gary Rohloff, managing director and co-founder of BNPL firm Laybuy said that the company welcomes proportionate regulation of the sector.
"We need a regime that protects consumers but one that strikes a balance and supports innovation, competition and reflects the lower risk and average purchase size compared to other forms of credit like store cards or credit cards," continued Rohloff.
Stella Creasy, Labour & Co-op MP for Walthamstow, criticised the lengthy gap between the government making a decision to regulate and the recent consultation.
“Today they announce it again as if taking action,".
"No actual laws means more time for these vultures to target people in a cost-of-living crisis.”
BNPL payments in the UK are projected to grow by over 20 per cent on an annual basis to reach over $32 billion in 2023 and over $55 billion by 2028, according to new research.
ResearchAndMarkets.com estimates that due to the cost-of-living crisis, over 36 per cent of UK consumers have used BNPL more than once, with millennials and Gen Z consumers using the payment method most frequently.
The use of Buy Now Pay Later (BNPL) services is rising across all UK age groups including pensioners, according to a study by education charity the Centre for Financial Capability (TCFC).
Goodland said that the organisation is concerned about the lack of financial literacy that can lead to further indebtedness which can have a snowball effect over time.