FCA to regulate buy now, pay later lenders
Millions of people around the UK opt to use buy now, pay later options when shopping in-store or online. With five million people choosing this service last year for a total of £2.7bn in sales.
However, a review by the Financial Conduct Authority (FCA) has found that one in 10 people who used buy now, pay later already had debt arrears elsewhere. Given the findings of this wide-ranging review, today (2 February 2021) the government has announced that buy now, pay later firms will now come under FCA regulation.
When this change will come into effect is not yet known. But what is clear is that this is a positive change as it will ensure customers are treated fairly, particularly those who are vulnerable or struggling with repayments. Under the plans, lenders such as Klarna and Clearpay will have to undertake affordability checks before lending.
John Glen, Economic Secretary to the Treasury, said:
Buy now, pay later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular. 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.
What is buy now, pay later?
Buy now, pay later firms offer consumers the opportunity to delay or spread the payment for goods and services. Typically, there is no interest charged when using buy now, pay later, however, if you are late paying or miss a payment, fees may be charged.
It’s important to understand that any money borrowed has to be repaid. So while delaying or spreading payment can help with cash flow, it’s important to evaluate your financial situation before making a purchase.
Currently, the decision on lending tends to focus on the risk for the firm, rather than the affordability for the customer.
Tags: Your Money