New government regulations governing 'buy now, pay later' (BNPL) services came into effect earlier this month, marking a significant shift in consumer protection for millions across the UK. Providers such as Klarna and Clearpay, which allow shoppers to spread the cost of purchases interest-free, are now subject to rules designed to bring them in line with traditional credit products like credit cards. This move follows years of campaigning by consumer advocates, including Which?, who highlighted the rapid growth of the BNPL market and the previous lack of regulatory oversight.
The headline changes mean that BNPL users now benefit from stronger protections, including the introduction of upfront affordability checks. Previously, these services operated without the same regulatory framework as other credit options, leading to concerns about consumers potentially taking on unaffordable debt. The new rules also provide enhanced rights for consumers to complain about providers if something goes wrong, offering a clearer path to resolution and redress.
The popularity of BNPL has surged dramatically in recent years, evolving from a niche payment method to a mainstream option. In 2017, approximately £60 million was spent using BNPL schemes, a figure that skyrocketed to £13 billion by 2024. Today, an estimated one in five UK adults utilises these services for a wide range of purchases, from clothing and white goods to holidays and even takeaway deliveries. The new regulations aim to address the regulatory gap that emerged during this period of rapid expansion.
However, while the increased protections are broadly welcomed, some financial inclusion experts are raising concerns about potential unintended consequences. Kate Pender, CEO of Fair4All Finance, a not-for-profit organisation focused on boosting financial inclusion, suggests that these changes could come with significant trade-offs. There is a worry that the stricter lending criteria, while safeguarding some, might inadvertently restrict access to flexible credit for the very borrowers who need it most, potentially pushing them towards less regulated or more expensive alternatives.
Consumer rights under UK law, such as the Consumer Credit Act, now extend to these BNPL products in a way they did not before. This means consumers have greater recourse if they believe a provider has acted unfairly or if they encounter issues with their payments or purchases. The government’s move to regulate the sector underscores a recognition of its widespread use and the necessity to ensure a fair and safe environment for all users.