As reported by BBC News, the UK government has introduced new rules to protect people using buy now, pay later services (BNPL), aiming to bring more control to what it describes as the “wild west” of unregulated borrowing.

Under the new legislation, lenders will be required to carry out affordability checks to help prevent people from taking on unmanageable debt. Shoppers will also benefit from quicker access to refunds.

Senior Financial Services Solicitor at law firm Harper James, Charles Rogers, comments on what this new legislation means for firms:

“The government’s move to bring Buy Now Pay Later (BNPL) products offered by third-party lenders within the scope of regulation is a much-needed step forward. These services have grown rapidly in popularity, especially among younger generations of consumers. But this growth may have outpaced consumer awareness and regulatory oversight, leading to significant risks for users who may not fully understand the financial commitments they are entering into and the potential for late payment fees.

“Until now, BNPL providers have not been required to conduct affordability checks, and the terms of these credit agreements have not always been clear. This has left consumers exposed to potentially unaffordable debt, with limited access to redress when things go wrong. The new regime aims to correct that by allowing the FCA to apply consistent standards across the sector for third party lenders.

“Requiring upfront affordability checks will help prevent people from taking on more than they can manage. Faster access to refunds and the ability to escalate complaints to the Financial Ombudsman will bring third party BNPL more in line with other forms of regulated credit. These protections will make a real difference for consumers, especially those who may be financially vulnerable.

“At the same time, this change gives the industry the clarity it needs to innovate responsibly. BNPL agreements offered by merchants directly will maintain access to the exemption. Credit brokers (except for domestic premises suppliers) will not require authorisation to continue arranging currently exempt BNPL agreements. Regulation does not have to stifle progress – in fact, it often provides the foundation for sustainable growth. Firms that embrace the new regime will be better positioned to build trust with their customers and to offer products that genuinely support financial wellbeing.

 “This legislation is a welcome development that balances consumer protection with commercial opportunity. It will help ensure BNPL is used as a tool for flexibility and convenience, rather than becoming a source of increased debt and reduced creditworthiness.”