New rules as credit deals soar
Buy now, pay later (BNPL) credit agreements will be regulated by the Financial Conduct Authority (FCA) following a surge in shoppers turning to such products during the Covid pandemic.
The agreements, provided by firms such as Klarna and Clearpay, allow shoppers to spread purchase costs interest-free at the checkout.
Options often appear on fashion websites and evidence suggests they are particularly popular with women and younger adults.
But they have been criticised for potentially encouraging people to spend more than they had planned and getting debts they cannot comfortably pay back.
Over the Christmas period, UK shoppers spent £2.3 billion on BNPL, with research saying one in five will struggle with repayments.
Last week the FCA announced providers will need to undertake affordability checks before lending and ensure customers are treated fairly.
Customers will also be able to take complaints to the Financial Ombudsman.
John Glen, Economic Secretary to the Treasury, said: “By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans.”
The move was welcomed by Citizen’s Advice Scotland, whose spokesman Myles Fitt said: “We all understand the temptations of BNPL deals, but if people access them but then don’t have the money ‘later’ to repay the debt, they can have devastating impacts.
“We would urge anyone who is struggling to repay any kind of debt to get advice from their local CAB as soon as possible.”