// Buy now, pay later lenders will have to carry out affordability checks before offering financing following a government crackdown on the controversial payment method
// The changes follow a consultation into BNPL practices that concluded earlier this year
The government has unveiled plans to tighten ‘buy now, pay later’ (BNPL) rules, which will require lenders to carry out affordability checks.
The big change follows a consultation on BNPL lending amid concerns around the model, particularly given the cost-of-living crisis, which has dramatically cut many consumers’ budgets.
BNPL has beccome a popular payment method in retail in recent years as lenders such as Klarna, Clearpay and Laybuy have partnered with many big businesses to offer the payment option at the checkout. BNPL payment in the UK is expected to grow by 50.5% on an annual basis, to reach £23bn ($30bn) in 2022.
Lenders will now be required to carry out checks on consumers to ensure they can afford to take out loans and will need to be approved by the Financial Conduct Authority.
READ MORE: Roundtable: What’s next for retail and BNPL?
The plans will also amend financial promotion rules to ensure adverts are not misleading and borrowers will also be able to take complaints to the Financial Ombudsman Service.
Economic secretary to the Treasury John Glen said: “Buy now pay later 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 buy now pay later 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.”
Gary Rohloff, co-founder and managing director of BNPL firm Laybuy said he was supportive of the government’s changes: “We have always been in favour of a proportionate model of regulation, one that reflects the low risk of BNPL, supports small ecommerce businesses and sets high standards across the industry,” he said.
“Since we started Laybuy, we have always set out to be the most responsible BNPL lender. That means working with credit reference agencies and conducting creditworthiness checks on all our customers. It’s a real endorsement of our model that the government agrees that this should be taken forward across the industry.”
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