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The UK government will soon unveil plans to regulate the Buy Now Pay Later industry, aiming to protect consumers and provide clarity for the sector.
Key Points
- The UK government will soon release plans to regulate the Buy Now Pay Later (BNPL) industry.
- Treasury department spokesperson emphasizes the importance of regulation for consumer protection and sector certainty.
- The Labour government aims to work closely with stakeholders for effective regulation.
- BNPL industry regulation has faced delays and is crucial due to rising consumer debt and arrears.
- BNPL firms, like Klarna and Block, express concerns over proposed regulatory measures.
The UK government is poised to unveil updated plans to regulate the rapidly growing Buy Now Pay Later (BNPL) industry, according to a Treasury department spokesperson. This announcement comes after multiple delays and amid increasing concerns over consumer debt and financial stability within the sector.
Tulip Siddiq, the new economic secretary to the UK Treasury, highlighted the government’s commitment to regulating BNPL products during a parliamentary session on Wednesday. “Regulating Buy Now Pay Later products is crucial to protect people and deliver certainty for the sector,” the Treasury spokesperson reiterated to CNBC via email on Thursday.
The Labour government, which recently came to power following Keir Starmer‘s landslide election victory, is looking to collaborate closely with all stakeholders to ensure the new regulations are comprehensive and effective. Siddiq emphasized that the government’s plans would be revealed shortly, marking a significant step forward after the roadmap for BNPL legislation faced multiple setbacks.
The initial plans to regulate the BNPL industry were introduced in 2021 after a review by former Financial Conduct Authority (FCA) boss Christopher Woolard. The review found that more than one in ten BNPL customers were in arrears, raising alarm bells about the need for regulatory oversight. BNPL plans, which allow consumers to purchase items and pay off their debt at a later date, have become increasingly popular, especially among younger consumers. However, the lack of standardized services and the mounting debt among users have prompted calls for regulation.
Gerald Chappell, CEO of online lending firm Abound, pointed out that data from his platform shows customers accumulating “thousands of pounds” in debt from multiple BNPL providers. Chappell questioned the sustainability of the BNPL model in a higher interest rate environment, expressing concerns about increased credit defaults and debt burdens.
The FCA is expected to play a central role in regulating the BNPL industry. Chappell predicted that the regulatory body could introduce new rules for the sector within the next 24 months. The former Conservative government had struggled to make progress on BNPL regulation due to political instability and lobbying from major industry players.
In a policy paper released last year, the UK government suggested applying existing regulations for mainstream lenders and credit card firms to BNPL plans. These proposed measures included greater information disclosure, exemptions for certain lenders, and supervision from the FCA. However, executives from major BNPL firms like Klarna and Block raised concerns that these regulations could drive consumers towards more expensive credit options.
A spokesperson for Clearpay, the UK arm of Afterpay, welcomed the government’s forthcoming announcement. Clearpay, part of Jack Dorsey-owned fintech Block, expressed optimism that the new regulations would provide much-needed clarity and protection for consumers.
As the UK government prepares to announce its regulatory plans, the BNPL industry will be closely watching to understand the implications for their operations and compliance requirements. The forthcoming regulations aim to strike a balance between fostering innovation in the financial sector and ensuring robust consumer protection in an evolving market.
