From Wednesday, July 15, a new online shopping checkout rule takes effect in England, bringing Buy Now Pay Later (BNPL) services under the regulation of the Financial Conduct Authority (FCA). This change aims to provide greater protection for consumers who use these services, which have been criticized for encouraging overspending without adequate safeguards.
Key Changes Under FCA Regulation
BNPL providers will now be required to conduct affordability checks for every purchase, not just when a customer first opens an account. This includes even small transactions under £50. Lenders must ensure that borrowers can afford to repay before completing a sale. They must also provide clear information about the agreement, including payment amounts, due dates, and consequences of missed payments.
Additionally, firms must point customers to free debt advice if needed and send immediate notifications when a repayment is missed. The FCA will monitor these processes, though lenders retain some discretion, meaning practices may vary.
Section 75 Protection Extended
One significant change is the extension of Section 75 protection to BNPL purchases costing between £100 and £30,000. This protection, previously only available for credit card purchases, allows consumers to claim refunds from the lender if goods or services are faulty or not delivered.
Martin Lewis Warns of Limited Protections
Consumer champion Martin Lewis, who campaigned for BNPL regulation, commented: "I was one of those who campaigned strongly to get buy now, pay later regulated. Not because it's wrong for everyone, but because we need to make sure it's safe." He added that while the regulation is a step forward, full protections are not yet in place. "You won't be able to go to the Ombudsman if something goes wrong for at least a year. So if you're getting buy now, pay later at the moment, you should still be very careful."
Impact on Consumers and Lenders
The new rules are designed to prevent consumers from accumulating unmanageable debt. BNPL services have grown rapidly, allowing shoppers to spread payments over time, often interest-free. However, critics argue that they can lead to hidden debt and financial strain. The FCA's oversight aims to balance convenience with safety, requiring lenders to act responsibly.
Thousands of renters in England also risk losing £367 to their landlord due to separate housing benefit changes, highlighting broader financial pressures on households.
