A more stringent check will block some shoppers

Shoppers will need to use Buy Now, Pay Later (BNPL) to pass stricter affordable checks under new rules that will come into effect in July next year.

This means that some shoppers will be denied this type of credit, which can slow down their ability to splash out things that may be out of hand after a few clicks.

Regulators say it prevents people from taking too much debt and catching them with late payment fees.

Nurses Julie Lowbottom told the BBC that this type of borrowing “it’s easy to fall into a trap.”

She had life easier with having options at your fingertips, but she managed her finances carefully so that she didn’t fall into the spiral, as debt was “easy and quick to mount.”

BNPL offers shoppers interest-free credits, allowing them to buy something immediately, and repay them in installments of 12 or less within 12 months.

Huge operators such as Klarna and ClearPay have appeared, and are being offered as payment methods by many of the UK’s biggest retailers.

Approximately 11 million people in the UK are using Buy Now. The City’s Watchdog – Financial Conduct Authority (FCA) – was estimated later last year.

The survey found that 30% of adults aged 25 to 34 used it at least once in 12 months in May 2024. The most common uses were “lifestyle and beauty purchases” and “treatment of yourself and others.”

BNPL is currently unregulated. This means that lenders do not require FCA approval to operate.

The charity has made repeated demands for extra protection after seeing an increasing number of people falling into financial difficulties.

Vikki Brownridge, CEO of StepChange Debt Charity, described the new proposal as a “significant step” in bringing sectors along other types of credits.

“Buy now, later users are twice as likely to borrow to cover mandatory bills for all credit users, and our research found that BNPL is just as common as using overdrafts among UK adults,” she said.

Recent laws have been passed. That is, after years of commitments from politicians, the FCA has now been able to discuss plans to regulate the sector in order to control the “wild west” of lending.

The plan should lead to a check of affordable advances, faster access to consumer refunds, and the right to complain to the financial ombudsman.

Additionally, if payments are missed, it should lead to clear information about the right to cancel, claims and impact on credit ratings.

For more than a decade, regulators estimate that consumers would be better at £1.8 billion, but provider profits will fall by £1.4 billion and trade less.

But it said it wanted to give lenders “flexibility” in how they applied the new rules, including affordable valuations.

Different lenders can use different methods to test whether people can cover their repayments.

“Because of the different digital journeys, we don’t prescribe how businesses will do that,” said Alison Walters, FCA’s director of consumer finance.

“Credits are incorrect for anyone. They can’t access this product and companies can sign other support like debt advice.”

The leading providers say they are fully supporting regulating the UK sector, but they need to allow businesses to innovate while protecting consumers.

A Klarna spokesman said: “After five years of constructive work with the Treasury, we buy now and pay the later regulations in real life, a big win for UK consumers.

“We look forward to working with the FCA on rules that protect consumers while maintaining options and innovation at the heart of the UK’s credit market.”

ClearPay said the plan “builds a more sustainable foundation for BNPL’s future as it continues to grow as a consumer’s daily payment option.”

However, the proposal was the same week when Prime Minister Rachel Reeves said there is a need for less regulations in financial services. The FCA said it was part of the purchase now and that later protections were based on the current FCA regulatory scheme.

Discussions regarding the FCA’s plan will continue until late September.

A temporary regulatory regime will be introduced before the new rules come into effect in July next year. This means that businesses must follow FCA rules and can continue trading before they are fully permitted.

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