According to government measures released today, millions of consumers will be protected by tighter regulation of interest-free Buy-Now Pay-Later credit deals.
Lenders will have to ensure that loans are affordable, and laws will be changed to ensure that ads are fair, clear, and not deceptive.
The government plans to broaden the restrictions to include other types of unsecured short-term financing that pose similar hazards to consumers, such as dental work loans.
Buy-Now, Pay-Later credit agreements can help you manage your money by allowing you to spread the expense of a purchase over a longer period of time.
However, while taking out this form of loan, customers do not have the typical complete range of borrower protections, and they are rapidly growing in popularity, posing a significant danger of harm to consumers.
According to the government’s plans, lenders will be forced to do affordability checks to guarantee that loans are affordable for consumers, and financial promotion regulations will be amended to ensure that Buy-Now Pay-Later promotions are fair, clear, and not deceptive.
The Financial Conduct Authority (FCA) will have to license lenders who provide the product, and borrowers will be able to file a complaint with the Financial Ombudsman Service (FOS).
John Glen, the Treasury’s Economic Secretary, stated:
“Buy-Now, Pay-Later can be a useful method to manage your finances, but we need to make sure that people can embrace innovative products and services while being protected.”
“We are safeguarding consumers and promoting the safe evolution of this new industry in the UK by holding Buy-Now Pay-Later to the high standards we demand of other loans and forms of credit.”
The government’s plans for sector regulation are outlined in today’s consultation response. Due to the complexity of the issue, the government will provide a consultation on draft law by the end of the year.
Following that, the government plans to introduce secondary legislation by the middle of 2023, following which the FCA will consult on its sector guidelines.
Other types of short-term interest-free loans, such as those used to pay for dental care or larger things like furniture, will be subject to the same guidelines outlined today, as the risks are similar and consumers should receive consistent protections from similar products.
These laws will apply to firms who provide credit in conjunction with a third-party lender, and the government is seeking more stakeholder feedback to determine whether they should also apply to online merchants who provide credit for the purchase of their own items directly.
Today’s statement is part of the government’s strategy to boost the economy and lower living costs.
The Chancellor has delivered £37 billion in assistance, including offering at least £1,200 in direct payments to the eight million most needy British families this year – and giving every household in the UK £400 to help with their energy expenses.