The UK’s new Labor government is preparing to unveil updated plans to regulate the “buy now, pay later” (BNPL) sector, according to a government spokesperson. The Treasury department confirmed that these plans would be announced “shortly,” echoing statements made by Tulip Siddiq, the new economic secretary to the UK Treasury, in Parliament on Wednesday.
“Regulating Buy Now Pay Later products is crucial to protect people and deliver certainty for the sector,” the Treasury spokesperson told CNBC via email on Thursday.
Earlier this week, Siddiq, who was appointed as the UK’s new city minister following the Labor Party’s landslide election victory under Keir Starmer, informed lawmakers that the government intends to collaborate with all relevant stakeholders and will outline its plans soon.
This announcement follows multiple delays in the roadmap for BNPL legislation in Britain. Initial plans to regulate the sector were set out in 2021 after a review by former Financial Conduct Authority (FCA) head Christopher Woolard, which revealed that more than one in ten BNPL customers were in arrears.
BNPL plans allow consumers to purchase items and defer payment. Typically, these plans require an initial payment of one-third of the purchase value, with the remaining payments spread over the following two months. Most BNPL companies earn revenue by charging fees to merchants per transaction, rather than charging interest or late fees to consumers, though some firms do impose fees for missed payments.
The lack of standardization among BNPL services and the increasing debt burden on consumers, particularly younger ones, have prompted calls for regulation. Gerald Chappell, CEO of online lending firm Abound, noted that data from his platform shows customers accumulating significant debt from multiple BNPL providers.
Chappell remarked that while BNPL can be seen as a credit innovation, its sustainability is questionable in a higher interest rate environment. “You have a weaker economy, more credit defaults, and accelerating adoption of buy now, pay later, which increases debt burdens. Many of these firms are struggling and will continue to struggle,” he said.
Chappell predicted that the FCA might regulate the BNPL industry within the next 24 months.
Progress on BNPL regulation had previously stalled under the Conservative government due to political instability and industry lobbying. The UK had cycled through three prime ministers in 2022. Last year, the government suggested applying parts of existing regulations for mainstream lenders and credit card companies to BNPL plans, which would include greater information disclosure, exemptions for certain lenders, and supervision by the FCA.
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