Shoppers using buy now, pay later schemes will benefit from better protections from today as new regulations for the sector come into force.
BNPL, provided by companies such as Klarna, Zilch and Clearpay, allows customers to spread the cost of their purchases over time.
From today, BNPL is subject to consumer duty, meaning customers will get clear, upfront details about their agreement, including what payments are due when and what happens if a payment is missed.
Lenders are now required to carry out proportionate affordability checks and offer support to customers in financial difficulty.
“It’s great news that this is finally happening and means users of these services will benefit from stronger safeguards,” said Rocio Concha, director of policy and advocacy at Which?, which has long campaigned for more regulation.
“Before choosing BNPL, shoppers should consider whether they can comfortably afford the repayments and understand the consequences of missing them.
“Regulation should make those decisions easier by ensuring people have clearer information and stronger consumer rights.”
Regulation ‘will make people think more’
Mortgage brokers have welcomed the new regulations, pointing out a lack of awareness that BNPL is a form of short-term borrowing that can affect affordability assessments.
Darani Ganesharajah, mortgage broker at Springtide Capital, told Newspage she hoped regulation of the sector would “make people think more about what they are entering into and the risks involved”.
She also cautioned that as amounts borrowed through BNPL could be small – the cost of a clothing item or even a takeaway – people often forgot to mention them when applying for a mortgage.
“This can create issues later in the mortgage process when lenders identify the commitments through bank statements or credit checks,” she said.
Harry Goodliffe, director at HTG Mortgages, said the way BNPL was used was more of an issue than the scheme itself: “Someone occasionally spreading the cost of a purchase is very different from someone relying on BNPL for everyday spending.
“The new regulation should improve consumer protections and could reduce some of the stigma around these products.”
Those unable to repay ‘shouldn’t be lent to’
Consumers can also complain to the Financial Ombudsman Service if something goes wrong, which should make getting a refund easier if they’re due one.
Sarah Pritchard, deputy chief executive at the Financial Conduct Authority, which will regulate BNPL, said the sector “provides an important source of credit to many”, but “crucially, no one should be lent to if they’re unable to repay because that could worsen their financial situation”.
She added: “Now parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”