The UK’s financial regulator is enforcing stricter affordability checks for shoppers using buy now, pay later services under new rules coming into force next July.
It means that some consumers will be refused this type of credit and unable to spend money on something they may not be able to afford.
Buy now, pay later is currently unregulated, which means that lenders do not need the Financial Conduct Authority’s (FCA) approval to operate.
The regulator hopes the new rules will prevent people from taking on too much debt and being caught out by late payment fees, the BBC reported.
The FCA estimates that around 11 million people in the UK have used buy now, pay later in the last year.
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Huge operators such as Klarna and Clearpay have emerged in recent years, and retailers including Very, Currys and B&Q offer their own BNPL credit services.
Frasers Group, which operates Frasers Plus, revealed on Thursday (17 July) that it had taken a £40.1m profit hit in its Financial Services due to the decision to wind down its subprime credit business Studio Pay and reduce the risk of lending to borrowers who may be vulnerable.
FCA interim director of consumer finance Alison Walters said: “We are not prescribing how firms do it, because digital journeys will vary. But the firms must carry out an affordability check to ensure that consumers can afford to repay that borrowing.
“Credit is not right for everybody. There will potentially be consumers who will not be able to access this product and firms can signpost them to other support like debt advice.”
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