New buy now, pay later rules aim to protect shoppers

The government has introduced new regulations aimed at safeguarding consumers who utilize buy now, pay later services. These services allow shoppers to make purchases and defer payment, but there are growing concerns that some individuals may be overspending and accumulating debt that they cannot manage. The new legislation mandates that lenders conduct affordability assessments to ensure that consumers do not take on excessive debt. Additionally, shoppers will benefit from quicker access to refunds if needed. The popularity of buy now, pay later (BNPL) has surged in recent years, with approximately 11 million people in the UK reported to have used these services in the past year. However, consumer advocacy groups have raised alarms about the potential for users to unknowingly incur debt that they may struggle to repay. Under the BNPL model, instead of paying the full price of an item upfront, consumers can divide the total cost into smaller payments over a short period, typically spanning weeks or months. While this can be a convenient option for some, there are significant concerns that it may lead to financial strain for others. Currently, BNPL products operate without strict regulations, and Citizens Advice has described the new measures as a vital step toward enhancing consumer protection. Tom MacInnes, the director of policy at Citizens Advice, stated, 'For too long, individuals have been exposed to unaffordable debt from a BNPL sector that has functioned in a regulatory grey area. ' He emphasized that many consumers are struggling to meet their financial obligations, falling behind on essential bills, and often requiring emergency assistance, such as food bank vouchers. Discussions about tightening oversight of the BNPL sector have been ongoing for several years, and the previous government had also considered similar measures. The new legislation, set to take effect next year, will require BNPL firms to adhere to consistent standards, ensuring that consumers are fully informed about their financial commitments, their ability to afford purchases, and the available support options. This includes implementing upfront affordability checks, expediting refund processes, and granting consumers the right to lodge complaints with the Financial Ombudsman. Emma Reynolds, the economic secretary to the Treasury, remarked that while BNPL has 'transformed shopping for millions,' it has also left consumers vulnerable and has operated in a 'wild west' environment. She expressed confidence that these new regulations will protect shoppers from falling into debt traps while providing the BNPL sector with the stability it needs to invest, expand, and create jobs.