HMT consult on the Regulation of Buy-Now, Pay-Later: Draft legislation (October 2024)
On 17 October 2024, the Government opened a consultation on draft legislation to bring Buy-now, pay-later (BNPL) products into legislation. The new rules will ‘ensure those who find BNPL helpful can still benefit from it, firms can innovate and consumers are appropriately protected’ according to the FCA.
Buy-Now, Pay-Later payment methods increase the flexibility for customers when purchasing products. Through delaying and splitting payments, it allows buyers to reduce the cost of their upfront payment and help manage their outgoings month-to-month.
The Treasury’s proposals set out to “ensure people using BNPL products receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise”. The government’s approach will maintain access to a popular product while adding safeguards.”
Labour outlined its intentions to regulate the BNPL sector before the election, making a prominent feature in Labour’s “Financing Growth: Labour’s plan for financial services” paper announced earlier this year. The City Minister, Tulip Siddiq said the Government’s “approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”
The HMT announcement marks the third such consultation after Christopher Woolard, former interim boss of the Financial Conduct Authority boss, warned of the “urgent” need for regulation in a 2021 review. The previous Government announced its intention to regulate BNPL in February 2021 but pressed pause on the plans last summer.
Structure of the Consultation
Chapter 2 of the consultation asks for feedback on the draft legislation which will, subject to Parliamentary passage, deliver the government’s final policy position. HMT published a draft statutory instrument (SI), The Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025.
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Scope: the government is capturing third-party lenders offering deferred payment credit (DPC) agreements but to ensure consumers have continued access to useful and low-cost forms of credit, agreements such as those facilitated by employers or registered social landlords will remain outside regulation.
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Disclosure requirements: Companies will need to provide clear, simple and accessible information about loan agreements in advance so that shoppers can make fully informed decisions and understand the risks associated with late repayments. The FCA will be able to use its rulemaking powers to develop an appropriate disclosure regime in line with the Consumer Duty that will maximise consumer understanding.
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Temporary Permissions Regime (TPR): recognising the need to act urgently, the government intends to legislate for a TPR to ensure BNPL products are brought into regulation as soon as possible. A TPR allows unauthorised firms to continue to operate their BNPL lending until their application for full authorisation has been processed.
Chapter 3 of the consulation, explores the regulatory and non-legislative controls that, though not covered in the draft SI, are expected to apply to BNPL agreements once regulated. This includes Financial Ombudsman Service protection and the ability for the FCA to make rules, including on appropriate creditworthiness and affordability assessments.
The proposals will be supervised by the Financial Conduct Authority (FCA) and will apply the Consumer Credit Act, ensuring users receive clear information, avoid unaffordable borrowing, and have solid rights if there issues.
Chapter 4 sets out the next steps the government will take to deliver regulation with urgency. Chapter 5 seeks views on the potential impact of the proposed approach, including on those who share protected characteristics.
Next Steps
The deadline for comments on the consultation is 29 November 2024.
You can find out more information on this here.
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