Ministers launch long-awaited consultation on buy now, pay later firms

theguardian.com:

Ministers have promised to clamp down on unregulated buy now, pay later firms and offer stronger protection for consumers, as the government launched a long-awaited consultation on rules to regulate the booming sector.

The Treasury said new proposals would mean buy now, pay later (BNPL) products would be regulated by the Financial Conduct Authority, while consumers would be given the right to have their complaints reviewed by the financial ombudsman.

The eight-week consultation being launched on Tuesday will outline the kind of rules that BNPL providers, including popular companies such as Klarna, Clearpay and Laybuy, would have to abide by, including the information they must disclose about their loans to customers.

The government estimates that the new rules could help protect about 10 million consumers from “unconstrained borrowing”. While shoppers are not usually charged interest on their purchases, campaigners have warned that borrowers are still at risk of overextending themselves with debt, and are not entitled to forbearance or compensation if things go wrong since such firms are not yet regulated in the UK.

It has led consumer champions including Martin Lewis to complain about the “painfully slow” pace of progress on regulating BNPL, which have broadly been expected to come into force sometime in 2024. The government’s announcement did not confirm when rules would take effect.

The Labour MP Stella Creasy, who has been campaigning for more stringent oversight of BNPL firms, said: “For years we have been warning of the dangers of buy now, pay later credit and the need to act before these legal loan sharks become the next Wonga-style scandal.

“Having finally agreed to bring the ombudsman in, the government must expedite