Millions of shoppers who use Buy Now Pay Later (BNPL) lenders to defer payments for purchases are set to benefit from greater protections under new rules.
From July 15, BNPL lenders such as Klarna and Clearpay will fall under the Financial Conduct Authority’s (FCA) regulation for the first time.
Affordability checks, support from BNPL providers for those in financial difficulty, and the ability to escalate complaints to the Financial Ombudsman Service if “something goes wrong” are among the changes to consumer rights.
But what does this mean in practice for shoppers?
We spoke with Jonathan Chesterman, debt advice policy manager at StepChange, who broke down the new regulation, explained what it means for everyday shoppers and outlined what consumers should know before using BNPL from July 15.
What new rights will consumers have that they didn’t have before?
“If something goes wrong, shoppers have the right to complain to the BNPL provider. If shoppers don’t receive a satisfactory response, they can then approach the Financial Ombudsman Service, which is free and objective,” Chesterman says. “Previously, if shoppers had a complaint they couldn’t resolve amicably or mutually with their BNPL provider, filing a court case under contract law would’ve been the only option.
“Shoppers will also receive more information about what they’re signing up to, what their commitments are and what the lender will or won’t do if they miss payments.”
What will the affordability checks entail?
“It’s still unclear exactly what it will look like in practice, but at a minimum there should be warnings, and possibly a quick calculator at checkout, to help customers work out whether they can actually afford the repayments,” Chesterman says. “The key thing is lenders will have to do something, whether that’s asking the customer or a more detailed assessment of income and outgoings. Right now there’s no real fiction in the process at all; if a BNPL option is available, you can just take it.”
“The regulation addresses two big problems. Firstly, there are currently no credit checks, so people already in financial difficulty can keep taking on more debt. Secondly, at StepChange we’ve seen clients with over 30 BNPL agreements – they clicked the option every time they bought something, and they didn’t keep track of what they owed. Affordability checks should mean lenders can no longer passively let that happen.”
Does the new regulation apply to BNPL purchases made before July 15?
Any BNPL agreements taken out before July 15 will not be covered by the new rules. “They will remain under the old, unregulated regime where there wasn’t any help,” Chesterman adds. For shoppers juggling multiple BNPL agreements, it’s worth reviewing them now and ensuring you have a clear picture of what you owe and when payments are due.”
What happens if you miss a BNPL payment under the new rules?
“That depends on individual BNPL firms’ collection practices, as each one will have been able to set up its own approach to dealing with shoppers who miss payments. It may be that if they miss one payment, they receive a reminder letter,” Chesterman says.
However, in more serious cases, Chesterman says BNPL lenders could take further, stronger action, such as recording a missed payment on a customer’s credit file, which may reduce their credit rating. This is the same consequence you would face for missing a payment on a credit card or personal loan, and could affect your ability to access other forms of credit in the future, such as a mortgage or car finance.
Are there any downsides to the new regulation for shoppers?
“I would say no, but it’s hard to know until it goes live in July,” Chesterman says. “Some critics argue the regulation could go further, and others argue there’s a risk it could drive shoppers to other sources of financing, which may not be helpful. But at StepChange, we definitely welcome greater regulation because it means that fewer shoppers will be tipped into debt because of the volume of BNPL agreements they’ve signed up for.”
What’s your number one piece of advice for shoppers using BNPL after July 15?
“Before making a purchase, shoppers should ensure they can afford BNPL repayments,” Chesterman explains. “They should also keep a track of what they buy using BNPL – this could be as simple as a spreadsheet or a pen and paper. A record helps shoppers see exactly how many months they have left to pay and the exact amount due, preventing them from overcommitting. If they do overcommit, they should seek help: don’t sit and suffer in silence and don’t be embarrassed.”
Chesterman recommends that BNPL shoppers in debt should seek free debt advice from companies such as StepChange and Citizens Advice. “There is no need to pay for debt advice,” he adds.
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