A spokesperson for Britain’s new Labour government informed CNBC that they will soon introduce updated regulations for the “buy now, pay later” sector. The Treasury department spokesperson confirmed that these plans will be presented “shortly,” reiterating recent remarks made by Tulip Siddiq, the new economic secretary to the U.K. Treasury, to Parliament.
“Regulating Buy Now Pay Later products is essential to protect consumers and provide certainty for the sector,” the Treasury spokesperson said via email on Thursday.
Earlier this week, Siddiq, who was appointed as the U.K.’s new city minister following Keir Starmer’s Labour Party’s decisive election victory, told lawmakers that the government intends to collaborate closely with all relevant stakeholders and will announce its plans soon.
This announcement comes after several delays in the BNPL legislation roadmap, initially proposed in 2021 following a review by former Financial Conduct Authority head Christopher Woolard, which revealed that over one in ten BNPL customers were in arrears.
BNPL arrangements allow consumers to purchase items and pay off the debt later, typically charging a third of the purchase price upfront and the remaining amount over the next two months. BNPL companies generally earn revenue by charging merchants per transaction fees, though some firms impose missed payment fees, and practices vary across the industry.
This inconsistency and the rising debt among younger consumers have fueled calls for regulation. Gerald Chappell, CEO of online lending firm Abound, noted 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 and predicted that the Financial Conduct Authority might regulate the industry within the next 24 months due to economic challenges and increasing credit defaults.
Numerous Delays in BNPL Regulation
Efforts to regulate BNPL faced several setbacks under the previous Conservative government. Contributing factors included significant political instability in the U.K., with the country experiencing three different prime ministers in 2022 alone, along with lobbying efforts from major industry players.
In a policy paper released last year, the U.K. government proposed extending certain existing regulations for traditional lenders and credit card companies to BNPL schemes. These measures would require enhanced information disclosure, provide exemptions for specific lenders, and establish oversight by the Financial Conduct Authority.
Executives from major BNPL firms Klarna and Block opposed the proposed regulations, arguing they could push consumers towards more expensive credit options, such as credit cards and car financing.
Clearpay, the U.K. arm of Afterpay, welcomed the government’s forthcoming announcement on BNPL regulation. A spokesperson for Clearpay, part of Jack Dorsey’s fintech company Block, stated, “We have always advocated for regulation that prioritizes customer protection and fosters innovation in consumer credit. Clearpay already implements safeguards to protect consumers, but we recognize that not all providers follow the same standards. This is why we support proportionate and appropriate regulation to ensure high industry standards.”
A Klarna spokesperson told CNBC via email that the company has long supported BNPL regulation to ensure clear information, protection from bad actors, and access to zero-cost credit. “We’re pleased the government has committed to introducing this so soon after taking office,” they said.
Philip Belamant, CEO of BNPL company Zilch, commented, “Too many lenders offer unregulated BNPL, which doesn’t impact customers’ credit scores. As a result, responsible lenders lack a full picture, and consumers miss out on necessary safeguards. It’s time to level the playing field and remove this exemption. Regulation of this sector is long overdue.”
PayPal, another provider of pay later loans in the U.K., did not immediately respond to CNBC’s request for comment on Thursday.
Globally, BNPL loans remain largely unregulated. In the United States, the Consumer Financial Protection Bureau has called for BNPL customers to receive the same protections as credit card users. The regulator introduced an “interpretive rule” for the industry, requiring BNPL lenders like Klarna, Affirm, and PayPal to issue refunds for returned products or canceled services, investigate merchant disputes and pause payments during these investigations, and provide bills with fee disclosures.
