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New rules for the UK’s £14bn “buy now, pay later” market risk excluding as many as 3mn people from the service, consumer groups are warning, as providers are forced to conduct extra checks.
UK lenders must verify customers’ creditworthiness and the affordability of loans each time they use a BNPL product, under Financial Conduct Authority rules that take effect on Wednesday. Lenders may also need to ask for information on income and expenditure if someone has a patchy credit history or potential repayment risks.
Consumer group Fair4All Finance has calculated that 20 to 30 per cent of the more than 10mn people who use BNPL loans in the UK could be blocked from using the products after the new consumer protection rules are introduced.
But Klarna and Clearpay, two of the sector’s biggest providers, are playing down those fears, arguing that regulation brings advantages that make it more attractive to consumers, such as being able to complain to the ombudsman or secure credit card-style refunds.
They also pointed out that after other countries introduced similar regulations in recent years, such as Australia and Turkey, the market grew.
“We believe our framework optimises for inclusivity,” Richard Bayer, chief executive of Clearpay UK, told the FT. “Consumers are going to come even more in droves to use it now there is regulation.”
Bayer added that the new regulations will probably provide a boost for the sector as greater protections will increase trust, which should mean an increase in demand for BNPL loans.
Under the new rules, lenders will also have to offer support to customers in financial difficulty and allow them to complain to the Financial Ombudsman Service. BNPL products will carry the same right to a refund as credit cards.
Klarna, which already carries out affordability checks on customers and allows complaints to the ombudsman, said: “We support the introduction of regulation, which will give consumers clearer protections, making it more appealing to more people.”
The FOS is gearing up for a flurry of BNPL cases, forecasting 2,000 a year. Money Wellness, the debt adviser, said a quarter of customers seeking its advice this year had at least one BNPL loan, up from 15 per cent in 2023.
Fair4All Finance said a recent survey of 6,000 consumers found 20 to 30 per cent were likely to fail the new checks due to previous bankruptcies, county court judgments, missed payments or low affordability ratings.
“New buy now, pay later regulation could create a credit cliff-edge for up to 30 per cent of current BNPL users,” warned Kate Pender, Fair4All Finance chief executive. She said more than half of those expected to be rejected had never missed a BNPL repayment.
Consumer groups have broadly welcomed the regulation, but some still worry about the risk of people having many BNPL loans from different providers.
Vikki Brownridge, chief executive of debt charity StepChange, said: “Clients have come to us with more than 40 BNPL debts and while this is exceptional it reflects inadequate safeguards to prevent large debts accumulating across multiple BNPL loans.”
The FCA estimated last year that 18 per cent of BNPL transactions between 2018 and 2025 would have failed a creditworthiness assessment. It said this figure was “broadly in line” with estimates provided to the regulator by firms.
Some advisers to BNPL providers think the new rules could trigger consolidation in the sector as some of the smaller groups drop out of the market.
“The compliance burden should not be underestimated,” said Ben Player, a partner at law firm TLT. “The FCA’s expectations are high and for some firms that may mean they stop providing their services and there could be a consolidation of the market.”
