BNPL lenders must ensure loans are “affordable”

It will also amend financial promotion rules to ensure BNPL advertisements are “fair, clear and not misleading”. In addition to this, lenders offering the product will need to be approved by the Financial Conduct Authority (FCA) with borrowers able to make a complaint to the Financial Ombudsman Service.

Commenting on the news, the economic secretary to the treasury John Glen said: “BNPL can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.

“By holding BNPL to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”

The new proposals come in response to a consultation that explored regulation for the sector. Given its complexity, the government will publish a consultation on draft legislation toward the end of this year, with it looking to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

The government has also confirmed that other forms of short-term interest-free credit (STIFC), such as those used to pay for dental work or larger items like furniture, will be required to comply with the same rules. This is due to the fact that the risks posed are similar and consumers should receive consistent protections from similar products. 

These rules will apply to businesses who partner with a third-party lender to provide credit, and the government is asking for further stakeholder feedback to confirm whether they should also apply to online merchants who directly offer credit for the purchase of their own products.   

The government will, however, allow exemptions for specific agreements where there is limited risk of potential consumer detriment, and where regulation would otherwise adversely impact day-to-day business activities.