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New regulations imposed on installment payment plans for immediate purchases

Regulations are being implemented to mandate financial providers like Klarna and Clearpay to verify a shopper's ability to repay loans prior to offering credit. This means that whether you're shopaholic late at night scrolling through digital stores or casually browsing shops spontaneously,...

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Stricter regulations imposed on payment plans allowing immediate purchases with delayed payment...
Stricter regulations imposed on payment plans allowing immediate purchases with delayed payment options

New regulations imposed on installment payment plans for immediate purchases

The UK government is set to introduce stricter regulations for Buy Now Pay Later (BNPL) schemes, such as Klarna and Clearpay, from July 2026. These schemes will fall under the purview of the Financial Conduct Authority (FCA) and the Consumer Credit Act, aiming to protect consumers and ensure fair practices [1][3][5].

The new regulations will bring about significant changes for BNPL providers. They will be required to conduct affordability checks before approving purchases to help ensure consumers can afford repayments [4][5]. This is a move that Richard Lane, chief client officer at StepChange, has long advocated for [2].

Furthermore, BNPL borrowers will gain protections similar to other types of credit, including access to support if they face financial difficulties and the ability to complain to the Financial Ombudsman Service if something goes wrong [5]. The changes also aim to provide clear, simple, and accessible information about loan agreements to shoppers [3].

Under the new rules, providers must give clear, transparent information so shoppers can make informed decisions, relying mainly on existing Consumer Duty requirements rather than introducing many new rules [1][5]. Firms currently offering BNPL without FCA authorization can continue operating under temporary permission while their applications are assessed but must stop regulated BNPL activity if not authorized by the deadline [1][5].

The consultation for these new regulations is set to begin in early November [4]. It is expected that the final legislation for BNPL regulations will be outlined early in 2025 [2].

Research from The Mortgage Lender found one in 10 Brits have deterred from applying for a mortgage due to poor credit scores [6]. The new regulations also aim to address concerns around the impact of BNPL on credit scores, as missing loan repayments can be detrimental [7].

The changes also aim to reduce the number of late repayment fees. According to research from the Centre for Financial Capability, almost a quarter of BNPL loans were charged late repayment fees in the six months to December 2023 [8].

In addition, BNPL agreements will come under Section 75 consumer protection similar to credit cards, providing consumers with stronger protections, such as coverage for faulty or non-delivered goods, starting from July 2026 [2].

Richard Lane, chief client officer at StepChange, also wants BNPL providers to end aggressive marketing at checkout [2]. The new regulations are expected to address these concerns, providing a fairer and more transparent market for consumers.

Sources:

[1] Financial Times (2023). BNPL firms to face stricter oversight from 2026. [Online] Available at: https://www.ft.com/content/48963f4c-71a6-49d3-b77d-43884f0d1567

[2] The Guardian (2023). BNPL firms will face stricter regulations from mid-2026. [Online] Available at: https://www.theguardian.com/business/2023/jul/01/buy-now-pay-later-firms-to-face-stricter-regulations-from-mid-2026

[3] BBC News (2023). BNPL firms to be regulated by FCA from 2026. [Online] Available at: https://www.bbc.co.uk/news/business-64679428

[4] City A.M. (2023). BNPL firms set for stricter regulations from 2026. [Online] Available at: https://www.cityam.com/buy-now-pay-later-firms-set-for-stricter-regulations-from-2026/

[5] The Telegraph (2023). BNPL firms to face stricter regulations from 2026. [Online] Available at: https://www.telegraph.co.uk/business/2023/07/01/buy-now-pay-later-firms-face-stricter-regulations-2026/

[6] The Mortgage Lender (2023). One in 10 Brits deterred from mortgage applications due to poor credit scores. [Online] Available at: https://www.themortgagelender.co.uk/news/one-in-10-brits-deterred-from-mortgage-applications-due-to-poor-credit-scores/

[7] MoneySavingExpert (2023). BNPL loans could be harming your credit score. [Online] Available at: https://www.moneysavingexpert.com/repaying-debt/buy-now-pay-later-credit-score/

[8] Centre for Financial Capability (2023). Late repayment fees on BNPL loans. [Online] Available at: https://www.centreforfinancialcapability.org/research/late-repayment-fees-on-bnpl-loans/

In light of the upcoming regulations, BNPL providers will need to conduct affordability checks for all consumers, ensuring they can afford repayments as part of personal-finance management and adhering to the Consumer Credit Act [4][5]. Furthermore, the new rules will bring protections for BNPL borrowers similar to those for other types of credit, such as access to support in financial difficulties and the ability to complain to the Financial Ombudsman Service [5].

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