Buy Now Pay Later: Shoppers Get More Rights Under New Rules  

Millions of shoppers who use Buy Now, Pay Later (BNPL) services, including Klarna, PayPal or Clearpay, will have stronger rights under new rules introduced by the government.

From 15 July, BNPL schemes will be regulated by the Financial Conduct Authority (FCA), the UK’s financial watchdog.

That means BNPL users will get the same protections offered by other forms of credit such as loans, mortgages and credit cards.

Under the new rules, BNPL providers must carry out affordability checks before offering credit to ensure that no one borrows more than they can realistically afford to pay back.

Customers will also have the right to seek a refund for faulty goods. If a BNPL user falls into financial difficulty, they must be referred to debt advice and support first rather than being immediately handed to a debt collector.

What do the new rules mean for you?

The new rules mean that only lenders authorised by the FCA can offer BNPL schemes, bringing them more in line with credit card and loan providers.

Customers using BNPL now get:

FOS referrals: shoppers can refer new unresolved complaints about BNPL providers to the Financial Ombudsman Service (FOS) for an independent review.

Section 75 Protection: BNPL customers can claim refunds and compensation for purchases costing more than £100 under s.75 of the Consumer Credit Act (which is already the case for credit cards).

Affordability checks: shoppers must pass an instant affordability test to check whether they can repay what they’re hoping to borrow. Those who don’t pass will have their purchase blocked

Clarity: BNPL providers must give clear upfront information about the BNPL loan and what happens if they miss payments

Debt advice: customers who fall into financial trouble must be referred to debt advice and support first instead of a debt collection agency.

Why are the rules changing?

The BNPL industry has grown rapidly in recent years with millions of people using providers as part of their everyday spending.

Until now, shoppers haven’t received key protections that apply to other forms of credit because BNPL providers weren’t regulated by the FCA.

Rachel Blake, Economic Secretary to the Treasury, said:

”We made a clear promise to give consumers the protections they deserve and today we are delivering.

“It is not fair that people using these products have had fewer rights than if they had paid by credit card. These new rules protect the consumer — with proper checks before credit is offered, real rights when things go wrong, and support rather than pressure if someone falls into financial difficulty.”

Should you use Buy Now, Pay Later?

As with all forms of credit, BNPL services can help you split the cost of purchases into affordable, interest-free instalments.

However, difficulties can arise if you spend more than you’re able to pay back and rely on credit as your source of income for spending.

Missing payments can lead to financial trouble such as damaging your credit score and potentially court-ordered action taken against you.

If you’re not sure whether BNPL is right for you some of the alternatives to consider are:

> saving: using money from a savings account or cash ISA could help you cover the cost of unexpected or emergency expenses. If the purchase isn’t urgent, taking time to save up for it can help ensure you can afford it without taking on extra debt.

> investing: for larger purchases that aren’t urgent, it’s worth considering whether investing using a Stocks & Shares ISA could help you build up the funds you need to buy the item without credit.

> sell your belongings: selling old or unused items can help you build up enough money to make a purchase without using BNPL