'Alarm bells' as a major change to Buy now, pay later postponed AGAIN
SHOPPERS are at risk of being left out due to delayed plans to regulate the Buy Now, Pay Later (BNPL) sector.
The government has postponed plans to regulate BNPL products after pressure from providers to water down its proposals, The Sun understands.
The Treasury was due to publish a response to the consultation last summer but postponed this while it examines whether this would lead to companies phasing out their products in Britain.
Nikki Worden, partner at law firm Osborne Clarke, which works with several major BNPL firms, told The Sun that many providers had fed back to the government that they could leave the UK as a result of the regulations.
She explained that this is because the change would impact companies' profits and some companies would risk going bankrupt before they had a chance to get permission and adapt to the new rules.
“Companies may choose to exit the market as they realize how expensive it is to run a regulated lending business,” she says.
“We have discussed these risks widely and we know that many in the market have communicated these risks back to government in response to their consultation.”
Sources say this is a major concern for the government as it does not want to limit the number of BNPL products on offer during a cost of living crisis.
The regulations are now expected not to be implemented before the next general election as the policy is “not an election winner” and the recommended changes to the plans are too complex to prioritise, an insider at a leading BNPL company told TheSun.
Ms. Worden added that she expects the process of introducing regulations to take “at least a year,” beyond the next election.
Stella Creasy, Labor MP for Walthamstow, said Chancellor Jeremy Hunt told her that regulation of the sector would be included in the Financial Services and Markets Bill 2023 – a massive piece of legislation outlining plans to regulate financial services in Great Britain -Britain.
But there was no mention of the plans in the final legislation, which was published last June.
It is understood that BNPL companies were then told to have a response by the end of 2023.
But a month into 2024, they still haven't heard an update from the government.
This is despite providers and the city's watchdog, the FCA, which would be responsible for regulating the sector, all pushing for a faster introduction of some form of regulation.
The delay is bad news for consumers because the lack of regulation around these products means companies don't have to follow the same rules as major lenders and customers aren't protected if something goes wrong.
Ms Creasy told The Sun: “If ministers are concerned that Buy Now, Pay Later companies won't be able to make a profit if we regulate them, that should raise alarm bells that the public is being mistreated or misled.
'Rather than seeing this as a pretext to further delay the introduction of these regulations, it should spur ministers on.
“The fact that this is not happening makes it clear that they are siding with these legal loan sharks rather than standing up for British consumers.”
What is Buy Now, Pay Later?
BNPL products allow consumers to defer or spread the cost of purchases over a specified period of time, interest-free.
For example, Klarna, one of the largest players in the market, offers a 'Pay in Three' product, where customers can pay for a purchase in three interest-free monthly installments.
Although the products do not charge interest, users may be charged fees for late payments.
Millions of people take advantage of these payment plans every year. But because BNPL products are unregulated, users are not subject to the same protections as other credit agreements.
For example, banks must ensure that they do not lend more money to customers than they can afford by examining their credit history and financial situation.
But BNPL providers are not required to implement such strict checks, although some companies such as Klarna have voluntarily introduced checks.
Consumers who do business with regulated financial companies are also protected by the Financial Ombudsman Service (FOS), which handles complaints between companies and customers.
However, BNPL users are currently unable to submit their claims to the FOS if they believe they have been treated unfairly.
The Sun has learned that one of the largest BNPL firms has asked the FOS several times if it could be a voluntary member, but has been refused on the grounds that it would be regulated.
This means millions of users have lost more than a year of FOS protection due to continued government delays.
Ms Creasy, who has been lobbying the Treasury to regulate the BNPL sector for years, added: “After 12 months of dragging, it is clear that ministers have no interest in protecting the public from exploitation, just like millions people do that now. debts owed to these companies.”
What are the regulatory concerns?
An insider at a leading BNPL company said feedback from businesses “across the board” at last year's government consultation was that regulations would be too onerous for businesses while failing to really benefit consumers come.
One of the main criticisms of the original proposals was that BNPL companies would be burdened by regulations, while stores offering their own BNPL products would remain exempt from the rules.
Another major criticism from BNPL companies was that regulation could deter consumers by appearing too complicated and pushing them toward higher-risk credit instead.
Ms Worden, from Osborne Clarke, said: “BNPL use could decline rapidly as it becomes more difficult for consumers to use the product quickly at the point of sale.”
A spokesperson for HM Treasury said: “When used correctly, BNPL can be a useful, interest-free way for consumers to manage their finances.
'We must ensure that the regulation of these products is proportionate to ensure borrowers are protected without unnecessarily restricting access.
“We will publish a response to our consultation once it is completed.”
An FCA spokesperson added: “BNPL can provide valuable benefits, but consumers also need the right information and protection – especially if they are struggling financially.
“It is up to the government to decide which products to regulate, but we are ready to regulate the BNPL sector once a final decision is made.”
How can I use BNPL without incurring losses?
When used correctly, BNPL plans can be a useful way to manage your finances.
The products work in a similar way to other forms of credit. The main difference is that they do not charge interest.
You usually have to pay within a certain period of time.
If you meet these repayment deadlines, you will not be charged any additional fees.
However, research has shown that many Brits have become too dependent on the products and are struggling to keep up with repayments.
Research from Citizens Advice last year found that around one in five BNPL users had missed or late made a payment in the past 12 months, while a third of users borrowed money to repay their installments.
The Sun revealed last year how a user racked up £1,500 in debt when she fell behind on repayments after spending £475 on clothes through BNPL.
Tabby Smith, from Tyne and Wear, said she was overwhelmed and suffered panic attacks and was only able to pay off the debt with a loan from her mother.
Laura Suter, director of personal finance at estate agent AJ Bell, said the tricky aspect of BNPL is that you can end up juggling many different payment dates with different providers, and if you miss a payment you'll end up with late payments and a bad credit score.
“Make sure you mark your calendar when you need to make a payment so you can check that there are enough funds in your account to make the payment – and that the payment is being processed,” she said.
'And BNPL is still a debt – so don't spend money you can't pay back. If you wouldn't put it on a credit card, don't use BNPL.
“Also, don't assume that BNPL is the cheapest and best option for you,” she added.
“Weigh it against a 0% credit card or a 0% overdraft and see which works best.”
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