Plans to organize the £2.7 billion buy is thriving in Britain now, and the payment industry will be issued later in a matter of weeks, and this is what money understands.
An advisory on draft regulations affecting platforms such as ClearPay, Klarna, Laybuy and PayPal is expected to be published in early May, after an amendment to the Credit Act passed in Parliament this week.
A Financial Conduct Authority review of the sector released in early February found it needed to be regulated “as a matter of urgency” as it was found to present “potential harm to the consumer”.
Checkout credit providers like Clearpay, Klarna, Laybuy and PayPal said to pose ‘potential potential harm to consumers’, according to a regulatory review of the sector
The regulation is likely to cover the marketing and usability of these platforms, enabling consumers to spread the cost of online shopping using credit.
It could require platforms to make tough credit checks that show up in borrowers’ reports, after an FCA review – led by its former chief executive Christopher Woolard – said it would be ‘relatively easy’ to collect up to £1,000 in debt from various providers.
Some platforms currently only perform “soft” searches which are not publicly visible to lenders, while some, according to a review, do none at all.
By organizing buy now, pay later providers will allow borrowers to file a complaint with the Financial Ombudsman Service, while This is Money also understands that credit card-style protections can be applied to pay credit providers.
Under Section 75 of the Consumer Credit Act 1974, credit card providers share the liability if a purchase between £100 and £30,000 is not as described, or if the consumer suffers a breach of contract or misrepresentation.
This could also apply to purchases made using buy now, pay later service providers, particularly given that consumers are increasingly using these payment methods to purchase higher value items such as white goods and electrical products.
Although Chancellor of the Exchequer John Glenn said two months ago that the government would regulate the sector “to mitigate the risk of consumers entering into unsustainable debt”, there had been little substantive action before this week.
Chancellor of the Exchequer John Glenn said in February that the £2.7bn industry would go in for regulation.
The Treasury Department was “under a lot of pressure” to introduce regulation, according to a source, though it remained very positive about the industry.
Government minister Earl Howe said the amendment to the Financial Services Act passed by Parliament on Wednesday marked the first step towards bringing the sector under “commensurate regulation”.
The amendment would allow the government to change companies that are exempt from the Consumer Credit Act; Legislation that largely does not cover buy now, pay later providers in its current form.
The government has said the advisory will be published “later in the spring”, and draft regulations covering the sector are expected to be released in May, meaning guidance could be two weeks away.
Any regulations would be implemented using secondary legislation, which would allow MPs to vote on them without amending them if they feel they have not been tough enough on exit credit providers.
But while this would make the passage of any rules “significantly faster,” the sources said it was “still likely to be delayed this year at the earliest before the regulations go into effect, given the time required for the consultation process.”
Labor MP Stella Creasy said in February she hoped retailers would remove these payment methods from their websites until any regulation takes effect, after she warned the rapidly growing sector could become the next Wonga-style scandal.
Some buy-now-pay-later providers don’t do any kind of credit checks, they don’t even run simple searches that don’t show up on borrowers’ credit files.
“While we wait for the government to act on the recommendations,” she said, “retailers who are currently promoting buy now, push subsequent products that we now know are exploitative, can take the first step and remove them from their websites until regulations are in place.”
Woolard’s review of the £2.7 billion industry found it only represented 1 per cent of the UK credit market “but it has accelerated very quickly to get there and is still growing”.
The value of payments made through these services has nearly quadrupled in the past year, with more and more retailers signing up to offer them as they make consumers spend more and more.
This is where Money reported last month how John Lewis and Marks & Spencer appeared to develop their own in-house payment methods later John Lewis also poached former Experian manager Amir Goshtai to run the financial services business.
New Look has branded its store credit to make it more like a buy-now-pay-later service, while John Lewis and M&S offer their own in-house versions where retailers cash in on the credit.
Meanwhile, popular retailer New Look described its in-store credit card, introduced by Sweden’s Ikano Bank, as a “buy now, pay later” service.
This is the money, some of those calling for a clampdown on the sector said they were disappointed to see the likes of John Lewis and Marks & Spencer jump on the “buy now, pay later” bandwagon, which they described as a “ticking time bomb”.
While many of these new providers do not often charge interest or fees on purchases, concerns have been raised about how stringent their affordability checks are and hiding such credit in borrowers’ credit reports, which has been criticized by major banks.
In response to the notion that such financing would be subject to formal affordability and credit checks, as suggested by the Treasury Department, credit agency Experian told This is Money: ‘We welcome steps to encourage more credit data sharing by buy now, pay later to industry. Because it benefits both lenders and consumers.
In doing so, all lenders will have an improved view of what their customers can afford to repay so they can make the most appropriate lending decisions. We will continue to work closely with the sector.
However, regulation may be burdensome for small businesses that make use of these providers, if they need to apply for a credit brokerage license in order to provide such financing.
Swedish imports Klarna, one of Britain’s largest post-payment platforms valued at up to £22.5 billion, previously told This is Money: ‘At Klarna, we have always called for regulation to raise standards across the sector and have welcomed Woolard’s review of change and innovation in the credit market. Unsecured.
Labor MP Stella Creasy has called for a crackdown on after pay services
“We now look forward to working alongside the FCA, government and the broader sector to build a modern regulatory and supervisory framework that delivers the best outcomes for clients.”
“We feel like we’re in a good place and we welcome proportionate regulation,” said Gary Rohloff, managing director of Laybuy. “We never use influencers to market our product and we do rigorous credit checks to make sure customers can repay us.
“Increasingly people are seeing the benefits of using buy now pay later, but it is important that it is done responsibly.”
Stella Creasy added: “The test of whether the government will control the damage caused by the BNPL industry is whether consumers are protected from taking out loans they cannot afford or can complain if the credit is missold.
“It is a step forward to say that the BNPL industry needs to be regulated, but the concern is that the details or timeline from when to implement it are still unclear.”
The Treasury said it had nothing to add beyond its announcement in February that the sector would be regulated.
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