LONDON–The British government plans to introduce rules for the “buy-now pay-later” (BNPL) credit market after the unregulated market spiked as consumers struggled during coronavirus pandemic lockdowns.
BNPL, particularly popular with young people shopping for clothes, is offered by companies such as Clearpay, which is owned by Australia’s Afterpay Ltd, Klarna, LayBuy, Openpay and Paypal, reported Reuters, noting the solution makes it quick to obtain such interest-free short-term loans that spread the payment for retail goods.
“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,” Financial Services Minister John Glen said in a statement.
Reuters reported legislation will be brought in as soon as parliamentary time allows, forcing providers to make affordability checks before lending to a customer.
Glen’s comments and the government action come in the wake of a review on the 250-billion-pound unsecured credit market by former Financial Conduct Authority interim CEO Christopher Woolard.
Getting ‘House in Order’
Woolard told reporters retailers could start “putting their own house in order” by doing credit checks on customers, adding that ideally the new rules would come into force in “months rather than years,” Reuters reported.
According to the report, demand for BNPL products spiked in Britain in tandem with COVID-19 restrictions, with products nearly quadrupling in 2020, and now total 2.7 billion pounds, with five-million users since the beginning of the pandemic, the review said.
The review further found more than one in 10 customers of a major bank using BNPL were already in arrears.
“The emergence and expansion of unregulated BNPL products gives consumers a significant alternative to more expensive credit, but this also comes with significant potential for consumer harm,” Reuters quoted the report as stating.