(qlmbusinessnews.com . Fri 18th Jul, 2025) London, UK —
Affordability Checks Mandated for Buy Now, Pay Later Services: Protecting UK Shoppers from Debt
Shoppers in the UK who opt for the buy now, pay later (BNPL) schemes will soon face rigorous affordability checks before they can secure credit, following new regulations set to be implemented in July of the forthcoming year.
The introduction of stricter rules means that certain customers could be denied the convenience of instant credit, potentially curbing the impulsive buying habits facilitated by the ease of a few clicks.
The regulatory changes are aimed at safeguarding consumers from accumulating overwhelming debt and getting ensnared by late payment penalties.
Julie Rowbottom, a nurse, expressed to the Reporters the pitfalls of such accessible borrowing options, despite their apparent convenience, highlighting how swiftly debt can accumulate if not managed with caution.
BNPL schemes, which offer interest-free credit for purchases repaid in 12 or fewer instalments within a year, have soared in popularity. Groundbreaking companies like Klarna and Clearpay have become mainstream payment options across numerous UK retailers.
According to the Financial Conduct Authority (FCA), around 11 million individuals in the UK have availed BNPL services over the past year. A survey revealed that 30% of adults aged between 25 and 34 engaged with these services within the 12 months leading to May 2024, predominantly for lifestyle and self-treat purchases.
Currently, the BNPL sector operates without regulatory oversight, meaning firms don't require FCA accreditation.
The clamour for tighter controls has intensified as charities witness a rising tide of financial distress among consumers.
Vikki Brownridge, chief executive of StepChange Debt Charity, hailed the upcoming regulations as a pivotal advancement towards aligning BNPL services with traditional credit models, indicating that BNPL users are notably more likely to resort to borrowing for essential expenses.
Following legislative developments, the FCA is poised to consult on its regulatory framework for the sector, marking the culmination of prolonged governmental pledges to rein in the so-called “wild west” of lending.
The forthcoming regulations promise to introduce mandatory affordability examinations, expedited refund processes, and avenues for complaints via the Financial Ombudsman, not to mention clear disclosures on cancellation rights, fees, and the impact on credit scores for missed payments.
Anticipated to benefit consumers to the tune of £1.8bn over ten years, the new regime is expected to simultaneously reduce providers' profits by £1.4bn due to a decrease in transactions. However, the FCA intends to offer lenders leeway in conducting affordability assessments.
Alison Walters, the FCA's interim director of consumer finance, emphasized the importance of tailored affordability checks, stating that credit might not be suitable for all consumers, some of whom may need to be directed to alternative support, such as debt advice.
Industry leaders have expressed support for the regulation, insisting on a balanced approach that fosters both consumer protection and innovation within the UK credit market.
Klarna, a leading provider, has acknowledged the impending regulation as a significant advancement for consumer rights after five years of collaborative efforts with the Treasury.
The announcement coincides with statements from Chancellor Rachel Reeves advocating for reduced regulation in financial services, although the FCA confirmed that some BNPL protections would fall under existing regulatory frameworks.
A consultation period on the FCA's proposals is set until late September, with a temporary regulatory framework to be established before the full implementation of the new rules in July. This interim period will ensure that firms adhere to FCA guidelines while awaiting full authorization.
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