Britain sets out legislation to regulate buy-now-pay-later credit (updated)

Openpay

14/02/2023 13:17

(Adds reaction, link to draft legislation)
    By Huw Jones
       LONDON, Feb 14 (Reuters) - Britain on Tuesday set out
draft legislation to regulate "buy now pay later" (BNPL) credit,
saying the sector posed potential harm to consumers without
thorough affordability checks.
    BNPL companies are largely unregulated and typically offer
on-the-spot interest-free short-term loans that spread payments
for retail goods like clothing.
    The sector nearly quadrupled during the pandemic in 2020 to
2.7 billion pounds ($3.28 billion).
    With Britain facing a cost of living crisis, consumer groups
worry cash-strapped people are getting into debt by using BNPL
to buy food or pay energy bills.
    The finance ministry launched a public consultation on
Tuesday on legislation to regulate BNPL, giving the Financial
Conduct Authority (FCA) powers to authorise operators and their
activities.
    The move had already been flagged for late 2022.
    "People should be able to access affordable credit, but with
clear protections in place," Financial Services Minister Andrew
Griffith said in a statement from the finance ministry.
    BNPL agreements currently rely on minimal credit checks,
with lenders not required to give key information to borrowers,
and some people may end up borrowing more than they can afford
to repay, the ministry said.
    "Buy Now Pay Later borrowing can be like quicksand - easy to
slip into and very difficult to get out of," said Matthew Upton,
director of policy at consumer group Citizens Advice.
    BNPL works well for millions of people but consumers need
protecting from problem debt, said StepChange, a debt advice
charity. 
    The ministry said consumers will also be given the new right
to take complaints to the Financial Ombudsman Service, part of
what Jonathan Herbst, a lawyer at Norton Rose Fulbright, said
was a fundamental change in approach for the sector.
    Last February, the FCA told BNPL operators Clearpay, Klarna,
Laybuy and Openpay to change their contracts after identifying
potential harm to customers. It had to use consumer rights law
pending the new legislation.
    Once the FCA has been given its new powers, it will consult
on detailed rules for the sector, such as mandatory
affordability checks, licensing of operators, and fair
marketing.
    Jane Goodland, trustee of the Centre For Financial
Capability, a financial education charity, said people of all
ages were turning to BNPL as they struggled to meet payments due
to rising inflation, showing the need for urgent regulation.
($1 = 0.8243 pounds)
 (Reporting by Huw Jones. Editing by Jane Merriman and Sharon
Singleton)
 ((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters
Messaging: huw.jones.thomsonreuters.com@reuters.net))