Klarna advises the UK government to make quick progress on the ‘new BNPL regulations’

Print

Email

An announcement by the UK government recently outlined its plans to tighten the Buy Now, Pay Later (BNPL) market rules and regulations. This new rule requires BNPL providers to carry out extensive checks on customers' creditworthiness and the ability to repay the loans. In addition, lenders will also need to be authorized and approved by the Financial Conduct Authority (FCA). The government clarified that these regulations are not just for BNPL players but could also apply to other short-term credits such as financing for bigger purchases.

A confirmation from the government was received stating that these regulations will also be implemented on businesses partnering with third-party lenders. Furthermore, the announcement also communicated that advertisements for BNPL should be ‘fair, clear and not misleading. Additionally, Financial Ombudsman Service (FOS) will deal directly with customer redressals.

With BNPL growing exponentially during the pandemic, reaching GBP 5.7 Billion in the UK by 2021, the government was worried that consumers could suffer if the sector remained unregulated. This distress of the regulators was further exacerbated by reports stating that BNPL loans in the UK were being used to cover basic expenses such as utility bills. Relying on paying through instalments amidst the surging cost of living was another reason the government applied even more stringent rules.

The government plans to reform the Consumer Credit Act, made 50 years ago for the regulation of credit card purchases and personal loans, which could have an adverse effect on BNPL loans. No information was provided on the specific measures they might introduce, but it is almost certain that it will benefit both the consumers and the merchants.

Swedish BNPL giant and the biggest BNPL player in UK, Klarna, serving almost 14 million consumers and over 13,000 retailers, has urged the government to expedite the implementation of the regulations. It believes this would provide ancillary protection to the consumers from traditional banks and non-regulated providers who dissimulate products with high interest as BNPL. Notably, before the regulations were passed, Klarna already had consumer protection policies, including but not limited to reporting the purchases made on their website to the credit agencies. Alex Marsh, the CEO of Klarna, added that it is a standard practice in the company to market the BNPL offering as credit and check their customer’s creditworthiness before providing any BNPL loans. 

Although the consultation for the draft legislation will come into effect sometime during the end of the year 2022, the UK government is still in talks with the stakeholders on whether the regulations will extend to online merchants selling their products on a line of credit. This regulation safeguards consumers from unreliable providers and helps protect merchants from potential frauds. It, however, might also cause a huge disruption in the UK’s BNPL landscape.

To know more and gain a deeper understanding of the BNPL market in the United Kingdom, click here.