The UK's Financial Conduct Authority has announced tighter consumer credit regulation for "buy now, pay later" schemes, which will save customers up to £60bn a year


FCA headquarters in London (Credit: FCA)

The Financial Conduct Authority (FCA) has today published new regulation on its policy for “buy now, pay later” (BNPL) products in the UK, in a bid to tighten up consumer credit risks.

The measures are designed to “reduce the harm” experienced by some consumers who have fallen foul of BNPL credit offers, and are estimated to save customers between £40m to £60m per year.

Buy now, pay later schemes have grown in popularity in recent years, as customers look to take advantage of interest-free promotional periods – usually up to 12 months.

But once this promotional period has ended, customers who have not repaid the full amount will be charged back-dated interest from the original date of purchase.

The UK regulator says that, typically, more than a third of customers do not make full repayments within the offer period, and so incur interest charged on their purchases.

FCA executive director of strategy and competition Christopher Woolard said: “Since taking over the regulation of consumer credit in 2014, our interventions have made a real difference to consumers, especially to people who use high-cost credit.

consumer credit regulation
Christopher Woolward, FCA executive director of strategy and competition (Credit: FCA)

“The changes we are announcing today in the BNPL sector build on these interventions.

“They are intended to simplify these products and make it easier for consumers to make informed decisions.”


FCA regulation aims to protect against consumer credit risks

The rules published today tighten the regulatory controls on these BNPL schemes, in an effort to provide greater levels of protection for customers who could find themselves generating high levels of debt as a result of these interest rates.

The most significant change to the regulation will be banning firms from charging backdated interest on money that has been repaid by consumers during the BNPL offer period.

This means that for any payments made towards the full amount of the purchase during the promotional window, customers will not have to pay interest.

Previously, consumers who repaid part, but not all, of the amount owed have still been charged backdated interest on that amount.

The FCA guidance also requires firms to provide “more balanced” information about these offers, which “appropriately reflects the risks as well as the benefits of the product”, as well as giving reminders to customers about when their offer period is about to end.

Mr Woolward added: “The rules we will be implementing will not only improve the information consumers receive about BNPL offers, but will stop firms from charging backdated interest on sums repaid during the offer period.

“We expect the overall package of measures will save consumers around £40-60 million a year and tackle the harm we identified in this market.

“As we have shown, we will intervene where we see harms and we remain vigilant in this and other sectors.”

New Zealand-based Laybuy, which offers BNPL services in the UK, says it welcomes the opportunity to collaborate with regulators, although will not be affected by the changes itself as it does not charge interest.

Co-founder and managing director Gary Rohloff added: “Any measures that provide better protection for consumers, facilitate additional transparency around ‘buy now, pay later’ products, and deliver the best quality service as a result, should absolutely be embraced.”