The Financial Conduct Authority has announced that firms like Klarna and Clearpay will be brought under their regulation.
The decision is the result of a four month review by Chris Woolard, former FCA interim chief executive.
Firms will now have to conduct affordability checks on customers before they are lent any money, and will allow customers to complain to the Financial Ombudsman in case of mistreatment.
The push for regulation is partly the result of the COVID-19 pandemic, which saw Buy Now Pay Later agreements quadruple to £2.7billion in 2020.
Five billion people have begun using Buy Now Pay Later services since the start of the pandemic.
The FCA’s report found that “areas where regulation is more ‘flexible’ or less prescriptive was seen as creating uncertainty. It was felt that this uncertainty reduced incentives on people to enter, or invest in, the consumer lending.”
Regulations now demand that customers who are struggling with repayments must be treated fairly.
It is a win for groups like Go Fund Yourself, who have campaigning for regulation for 8 months using the #RegulateBuyNowPayLater hashtag.
One of the campaigners, Alice Tapper, said in a Twitter thread that, “the hundreds of people who shared their story with the campaign who made it painfully clear that the lack of regulation is at the expense of consumers.”
As it stands, victims of fraud via BNPL products have been unable to seek the support of the Financial Ombudsman and shoppers as young as 18 are being advertised these products by influencers, with no risk wording. (3/5)
— Alice R Tapper (@AliceRTapper) February 2, 2021
Klarna has welcomed the changes. UK Head Alex Marsh released a statement in December 2020 titled ‘The Time is Right for Regulation’.
In it, he said “we are fully engaged in this process and agree it’s the right time; some parts of the laws underpinning UK regulation have not been reviewed for a very long-time and frankly are no longer delivering on good customer outcomes, while interest free products offered by Klarna and others are comparatively new and growing quickly in consumer preference.
The process has also, finally, brought all the different sides and interests in the industry together to discuss these topics properly for the first time.”
The UK government was urged to act quickly on BNPL regulation.
