New rules designed to protect consumers from the risks associated with buy now pay later (BNPL) payments will be introduced in early 2025, according to the Treasury.
The government is preparing to introduce requirements for affordability checks and consumer protections to prevent at-risk customers from accruing excessive debt through the use of BNPL.
Announced by Economic Secretary to the Treasury Tulip Siddiq on Thursday, a consultation will bring together BNPL firms and regulators to discuss how new rules can be effectively implemented.
The consultation will close on 29 November, with final legislation expected to be laid out in parliament in “early 2025” with the rules expected to take effect in 2026.
“Millions of people use buy now pay later to manage their finances, but the previous government’s dither and delay left them unprotected,” said Siddiq.
“We promised to take action before the election and now we are delivering. Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”
During the previous Conservative government, draft legislation was announced that would regulate BNPL as a credit product.
This policy was put on hold amid reports that the Treasury feared an exodus of BNPL providers, which Financial Conduct Authority (FCA) boss Nikhil Rathi said was a baseless concern.
In her role as shadow city minister, Siddiq criticised the Conservatives for delays, writing in August 2023 to the former economic secretary to the Treasury Andrew Griffith saying “the government’s constant dithering and delay has put the British public directly at risk, especially as the Conservative’s cost-of-living crisis has deepened”.
Siddiq has frequently spoken on the dangers of leaving BNPL unregulated. The Hampstead and Highgate MP told UKTN during September’s Labour Party Conference that regulation for the technology was coming “soon” and that consumers currently face a “black hole of debt”.
Rocio Concha, Which? director of policy and advocacy, said: “We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.
“Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers.”