Buy now, pay later will be regulated…but when?

The new government have  promised regulation for buy now, pay later (BNPL) schemes, giving customers greater protection.

BNPL schemes like Klarna, Clearpay and Laybuy have become hugely popular since the Covid-19 pandemic. But unlike other lenders, these services are not currently regulated, meaning you don’t have as many rights if things go wrong

Last week, Stella Creasy MP asked the new government to lay out their timeline for regulating BNPL credit providers. She also asked whether buyers would be able to access the financial ombudsman service to settle any problems between you and the lender.

Currently, if something goes wrong with your BNPL agreement, you can’t complain to the ombudsman.  

In response to her written parliamentary question, economic secretary to HM Treasury, Tulip Siddiq MP, replied that regulation was crucial and assured that the government would be setting their plans “shortly”.

Before the general election, Keir Starmer had said he was committed to regulating BNPL. The Treasury had announced its intention to regulate BNPL two years ago, but this didn’thappen before the July general election

Why does BNPL need regulating?

Most lenders, like credit card firms and banks, have to comply with protections made by the Financial Conduct Authority (FCA). These rules include how the debt works, how it’s communicated, and how to treat vulnerable customers, and how complaints should be dealt with.  

But right now, BNPL companies are not regulated by the FCA, which means customers are on their own if something goes wrong. Campaigners have long called for the BNPL market to be regulated to protect people from getting into debt they can’t manage.

An FCA review found that many people who use BNPL don’t fully understand everything about it and that lenders don’t check whether customers can afford to borrow from them.

Rise in BNPL debt

Our data shows that debt from BNPL doubled in the past year as  a growing number of people are relying on it  to make ends meet because of the cost-of-living crisis.

BNPL can be useful when you come across a deal that’s only available for a limited amount of time before payday. It’s also an easy way to cover the costs of essentials you can’t currently afford to buy, like groceries, bills, and fuel.

But like any other type of loan, it can lead to debt if you’re not careful. Keep in mind, for example, that if you miss a payment, you might have to pay late fees.

Is BNPL right for me?

Research has shown that those who use BNPL are more likely to have financial trouble. That’s because many people end up spending more than planned when a BNPL option is available.

It’s easy to use, which means shoppers might be more tempted to buy things they don’t need.

On top of this, using BNPL regularly can make it difficult to keep track of your money. It’s easy to forget you’ve got payments coming up when they’re split over several months. If you’re also re-paying other debts, the money you owe can quickly add up.

Before buying something with BNPL, ask yourself:

• have I got the money for this item in my weekly/monthly budget?
• could I wait until the money I need is in my bank account?
• do I really need this item?

Find out more in our guide on the pros and cons of BNPL and what to do if you can’t make a payment.

Do you need debt help?

If you’re worried about your BNPL debts getting on top of you or you’re behind on any other payments, we may be able to help.

Get free debt advice online or give us a ring. Whether you need budgeting help, advice on your benefit entitlement or information on debt solutions, we’re here for you.

All advice is free and impartial. Some debt solutions are also free, some have a fee.