Fintech providers and alternative lenders have welcomed the government’s plans to regulate the buy-now, pay-later (BNPL) sector.
Earlier today, the Treasury confirmed that BNPL lenders will be required to ensure that all loans are affordable, and all lenders must be authorised by the Financial Conduct Authority.
Bradley Rice, partner at law firm Ashurst, said that this represents “the end of unregulated BNPL lending”, and predicted that the new regulations will come into effect in 2024 at the earliest.
Meanwhile, Mike Peplow, chief executive at Paynetics said that affordability checks would help to protect consumers from overspending.
“Regulation is an appropriate development for the BNPL space, bringing the product into the mainstream whilst making sure we have positive outcomes for consumers,” said Peplow.
“Although BNPL often doesn’t charge an interest rate to the consumer, there are penalties and repercussions for late or non-payment.
“Simply providing a link to terms and conditions on a website, or providing a page of small print in an app, is not going to be sufficient to convince the regulator that firms have sufficiently communicated the implications of taking on a BNPL product.
“The new affordability checks coming into play today will protect consumers from spending beyond their means.
“Regulation is a vital next step for BNPL and I believe these changes will help the consumer while continuing to champion the development of this innovative sector.”
However, Neil Kadagathur, chief executive and co-founder of fintech lender Creditspring, warned that the regulation should be introduced without delay.
“While the proposed regulations are a welcome step forward, we simply cannot wait that long to regulate the BNPL sector,” he said.
“There is chronic miseducation about BNPL – one in seven UK adults thinks it’s impossible to get into debt using BNPL and a third are unaware that it’s even a form of borrowing and debt. This, combined with the cost of living crisis which we know is pushing more people into borrowing, is unsafe and unsustainable, and is guaranteed to damage the long-term financial health of millions of UK borrowers.
“In lieu of immediate regulation, the onus falls to lenders to ensure they are lending safely and protecting borrowers by not providing more credit than an individual can safely afford to repay.”