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Buy-now pay-later firms to face new legislation.
The government has announced eagerly awaited plans to regulation ‘buy-now pay-later’ (BNPL) companies. BNPL allows consumers to buy goods and services and pay for them later in instalments. These are typically interest free instalments, which appeals to many shoppers.
However, there are concerns about people falling into debt when using these schemes, particularly as the cost-of-living crisis rattles on. Users of BNPL firms are not entitled to breathing space if they cannot repay their instalments. Similarly, they are not entitled to compensation, should anything go wrong.
The Treasury has said up to 10 million people would be protected from potential financial harm as the result of the new measures.
In a bid to stop unconstrained borrowing, lenders will now have to do more thorough checks on borrowers. These include more in-depth affordability checks and offer clearer information on loans. Customers will also have the power to make complaints about BNPL firms to the Financial Ombudsman.
BNPL has soared in popularity in recent years, however they have remained largely unregulated. The government first proposed regulation to BNPL back in 2021, and it has been long-awaited legislation.
Under the new legislation plans, the Financial Conduct Authority (FCA) will be given powers to clamp down on firms who break rules. Previously, the FCA have had to rely on consumer rights laws in the absence of specific legislation when BNPL firms have not followed specific rules or are deemed to have treated customers unfairly.
The new rules will also mean firms must be licensed by the FCA. Tougher advertising rules would also come into place, and the FCA will also have the power to ban companies from further lending should they break the rules.
The new laws are expected to come into force before the end of the year.