Why MSE is campaigning for buy now, pay later to be regulated

You might well be one of the millions of us who've used buy now, pay later (BNPL) in recent years. Services like Klarna, Clearpay and Laybuy have become hugely popular, especially since the Coronavirus pandemic hit and more of us took our shopping online.

But did you know that, almost always, this type of debt is completely unregulated?

As a quick definition, BNPL services typically allow you to spread the cost of shopping over a number of weeks or months, rather than having to pay in full up front. Managed correctly, it can be a cheap and quick way of accessing credit. Yet while it’s usually interest-free, it’s still a form of borrowing that needs to be repaid – and if something goes wrong you can face late fees and even marks on your credit file.

This blog is specifically about MSE’s campaign to get BNPL regulated, but if you’d like more info on how it works, and whether it's the right way to borrow, head over to our BNPL guide.

Why does it matter that BNPL isn’t regulated?

Well, most lenders – say, credit card firms or banks offering personal loans or overdrafts – have to comply with consumer protection rules made by the regulator, the Financial Conduct Authority (FCA). This tends to cover aspects such as the fundamentals of how the debt works, the way it’s communicated, how vulnerable consumers should be treated, and the way that complaints are dealt with if there's a problem.

But BNPL companies typically use an exemption to regulation, meaning that they can offer you their services without having to comply with the rules that apply to other forms of debt.

This means that there just aren’t the same safeguards on whether BNPL is operating in a way that treats people fairly, and it means that if something goes wrong, there’s no access to the Financial Ombudsman Service (FOS). As the number of UK consumers using BNPL services continues to grow at speed, so does the potential for harm in an unregulated market.  

Is BNPL all bad?

No. BNPL can be – and regularly is – a useful tool for consumers when making spending decisions. When we’ve asked MSE users about it, a lot are happy with their experiences, and find it a helpful way to organise their borrowing. But the lack of protection is a huge concern – so we can’t be relaxed about this.

What do MSE users think about BNPL?

We last surveyed MSE users for their thoughts on this topic in December 2021, and are grateful that over 9,000 people took part in the research. The methodology used means that the results should not be read as nationally representative, but they do provide very useful and up-to-date insights on how BNPL users are experiencing the market, and harms currently occurring. Here’s a snapshot of what they told us:

  • Just half of those surveyed feel in control when using BNPL services.
  • The marketing and product design of BNPL services leaves some unclear that they are taking on a form of debt.
  • A notable minority of those on lower incomes have struggled with repayments or experienced regret after using BNPL services.
  • Many who struggle with BNPL repayments have to cut back on essential spending. This issue is particularly severe for those on the lowest incomes.
  • Struggling with BNPL repayments has adverse knock-on effects for other household finances.
  • Many experience issues with BNPL customer services and complaints, resulting in negative effects on financial and emotional wellbeing.

What is MSE calling for?

Alongside others, like campaigner Alice Tapper, and Citizens Advice, we’ve been calling for BNPL to be regulated, so that the same or similar rules that apply to other forms of debt also protect people using BNPL.

We’ve recommended to the Government that regulation should cover these areas:

  • Advertising and promotion of BNPL must make it clear that this is debt
  • Information given to consumers before they use BNPL must make it clear what the consequences are if they can’t keep up with repayments
  • BNPL must be designed in a way that gives consumers enough information, in an effective way, to enable them to make informed spending, or borrowing, decisions
  • Like when using a credit card, section 75 of the Consumer Credit Act must also apply to BNPL transactions
  • Internal complaints processes need to be improved, and BNPL users must also have access to the financial ombudsman

When will BNPL regulation happen?

We were delighted when the Government announced that it would regulate BNPL firms in February 2021. This move coincided with the publication of the 'Woolard Review', a report looking into change and innovation in the unsecured credit market. Commissioned by the FCA, it highlighted several potential sources of consumer detriment through BNPL use and also called for the sector to be regulated.

The Treasury launched its own consultation in October 2021, asking for views on what 'proportionate' regulation of BNPL might look like, and MSE responded with our key recommendations. 

While we know that BNPL is set to be regulated, the pace of progress seems painfully slow – especially when considering how widespread BNPL use now is. Millions of BNPL users need the Government to quickly give the FCA the powers it needs to protect people using this form of debt.

Update: July 2023

Since we published this blog last year, the Government has issued a further consultation on BNPL regulation and laid out more detailed plans on consumer protections. You can read MSE’s response, as well as what we had to say about the first consultation, on our campaigns page.

Earlier this month, we heard worrying rumours that the Government was considering shelving plans to regulate the growing sector. Our Founder and Chair Martin Lewis quickly and publicly raised his concerns and re-iterated our key campaign goals:

  • Fairness rules should apply like with other debt.
  • If treated badly while using BNPL, you can go to the Financial Ombudsman.
  • Firms must be honest that this is borrowing, and not market it as a lifestyle choice.

In an open letter sent to the Chancellor Jeremy Hunt on 18 July, six organisations - including MoneySavingExpert.com - urged the Government to bring in the new rules to protect consumers as soon as possible. We’ve long called for this to happen and will continue to push the Government to pick up the pace.