The UK government and the Financial Conduct Authority (FCA) have plans to bring Buy Now Pay Later (BNPL) products under regulatory oversight.
The move aims to protect consumers and ensure that BNPL providers operate fairly and responsibly.
On Thursday, the UK government launched a consultation on draft legislation to regulate the BNPL market.
The proposed regulations seek to provide consumers with clear information, prevent unaffordable borrowing, and establish strong consumer rights.
The FCA welcomed the government’s consultation and reiterated its long-standing call for BNPL products to be brought within its regulatory remit.
“BNPL can provide benefits for consumers by giving them more payment options and support merchants in selling their goods and services. But as with other credit products, there are also risks and the potential for harm,” said the FCA.
The proposed regulatory regime will include requirements for BNPL providers to conduct affordability checks, provide clear information to consumers, and adhere to the Consumer Duty.
Borrowers will also have the right to take complaints to the Financial Ombudsman Service.
Once the legislation and FCA rules are finalised, BNPL firms will need to apply for authorisation. The FCA intends to introduce a temporary permissions regime to allow firms to continue operating while their applications are being processed.
The government and FCA expect the new regulations to come into effect within 12 months of the legislation being passed.