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Providers of “buy now, pay later” lending will be able to give shoppers less information before they borrow money than initially proposed by the UK financial regulator under new rules taking effect in July.
The Financial Conduct Authority said its incoming regulation was designed to boost consumer confidence and reduce distress in the fast-growing sector, which provides more than £13bn of short-term loans to almost 11mn people in Britain to fund their purchases.
The new rules, following legislation last year, will require lenders in the sector such as Klarna and Clearpay to carry out checks on customers’ income and expenditure but only if they have a patchy credit history or clear affordability problems.
Lenders would also have to offer support to customers in financial difficulty and allow them to complain to the Financial Ombudsman Service (FOS) if “something goes wrong”, the watchdog said.
The FCA on Wednesday said consumers would receive “clear, upfront details about their agreement, including when payments will be due, amounts and what happens if they miss a payment”.
But after some lenders raised concerns about the risk of presenting customers with too much irrelevant information, the regulator said it had removed some requirements.
Lenders will no longer have to tell customers upfront about withdrawal and cancellation rights in the credit agreement, their right to complain to the FOS, or the lender’s ability to take money from their account.
The market for “buy now, pay later” loans, which typically provide interest-free credit repayable in less than 12 months, has gained in popularity as a way for people to spread payments over several months. But it is unregulated in many countries, including the UK.
Consumer groups have warned that borrowers risk accruing unmanageable levels of debt under the current regime. The FCA said its analysis found consumers using such loans “are more likely to be in financial difficulty than the general population”.
Some of the bigger providers, such as Klarna, already carry out affordability checks on customers and allow complaints to the ombudsman.
Big companies in the sector have broadly welcomed the new rules, which require them to be authorised by the end of the year.
Klarna said they would “raise standards across the market, give consumers clearer protections . . . and make BNPL even more appealing to consumers”.
Damien Burke, head of regulation at credit advisers Broadstone, said: “For a product that is often positioned as a budgeting tool rather than credit, this regulatory reset is important in ensuring borrowers fully understand both the risks and the repayment obligations involved.”
The FCA said much of its approach to the sector relied on its flagship consumer duty, which requires companies to ensure their consumers receive a good outcome from a product or service.
“We want the buy now, pay later sector to thrive — it provides an important source of credit to many,” said Sarah Pritchard, FCA deputy head. “But crucially, no one should be lent to if they’re unable to repay because that could worsen their financial situation.”
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