The UK’s main financial watchdog would receive sweeping powers to clamp down on “buy now, pay later” companies in breach of its rules, including banning them from further lending, under draft government proposals aimed at giving consumers who use the popular but controversial short-term credit product greater protection.
The details of the proposed enforcement regime for the Financial Conduct Authority will be published by the Treasury in a consultation paper on Tuesday. The move comes two years after an FCA-commissioned review found an “urgent need” to regulate the fast-growing sector.
“People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important,” said Andrew Griffith, economic secretary to the Treasury.
Buy now, pay later products allow consumers to repay the cost of a purchase in regular instalments, which are interest-free so long as they are paid on time.
The use of these loans has grown rapidly in the UK, driven by the big rise in online shopping during the pandemic, where the market is unregulated, drawing criticism from debt charities, civil society groups and politicians about consumers taking on unaffordable levels of debt.
Recent research by the UK-based financial education charity the Centre for Financial Capability showed the popularity of the loans continuing to grow across all age groups and an increasing number of borrowers falling into arrears.
In his review for the FCA published in February 2021, the watchdog’s former interim chief executive Chris Woolard warned that buy now, pay later could represent a “significant potential consumer harm”.
The draft government proposals include a range of new powers for the FCA, including allowing the watchdog to block future lending by buy now, pay later providers that do not follow the rules for assessing a customer’s creditworthiness. Their authorisation would be withdrawn.
Other proposed regulations include requiring lenders to provide customers with more information about their loans. Consumers would also be able to bring complaints against buy now, pay later companies to the Financial Ombudsman Service, which adjudicates on consumer disputes.
Last August, the FCA warned lenders about following rules on financial promotions, having found social media posts promoting the loans without highlighting the consequences of a failing to repay them.
Fears that consumers may be taking on overbearing levels of debt, in some cases without realising it, have been heightened by the cost of living crisis.
“Buy now, pay later is the wild west of credit with many people racking up commitments they can’t meet. Regulated, responsible lenders often see applicants with as many as 30 outstanding buy now, pay later loans and low awareness of the consequences of missed payments. Regulation is long overdue,” said Theodora Hadjimichael, chief executive of Responsible Finance, a trade body that promotes affordable lending.
Source link
