Purchase now, pay later companies to get regulated – and all patrons now face affordability checks
Buy now, pay later is a simple concept: instead of paying at the checkout or online, the BNPL provider pays the retailer for you. You then agree to repay the BNPL provider over a few weeks or months so that you can spread your purchase costs. It's interest-free and fee-free, but if you miss a repayment you run the risk of being charged late fees, which in turn can negatively affect your creditworthiness.
Affordability checks are required
According to the FCA, the use of BNPL (Buy Now, Pay Later) products has nearly quadrupled in 2020 as 5 million people have been using them since the coronavirus pandemic began.
While the average transaction tends to be relatively low, buyers can enter into multiple arrangements with various vendors – and the review found it would be relatively easy to run into around £ 1,000 in debt that credit bureaus and incumbent lenders can't see. The FCA also found that more than one in ten customers of a major bank using BNPL were already behind.
The Woolard Review recommends buying interest-free now and paying for later products under the supervision of the FCA, which HM Treasury approved today. Under the new rules proposed by the government, lenders are required to conduct affordability checks on customers and ensure that those at risk are "treated fairly".
Under current affordability rules, companies do not need to do so-called “soft” or “hard” credit checks prior to lending, although in practice many lenders do. The FCA says it is up to lenders to assess what information they need to be satisfied that a loan is affordable, and it is also up to lenders whether to provide credit information to credit bureaus.
You can lodge complaints with the Ombudsman
Once implemented, the government's proposals also mean that customers who have problems with a service that is bought now and paid for later can refer their complaint to the independent Financial Ombudsman Service. This is something they cannot do right now.
However, the changes will not take effect yet
The next step is for the government to launch a consultation to ensure that their approach to regulating purchase now and payment later is "proportionate". Once approved, the government plans to propose new laws "as soon as parliamentary time allows".