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MPs vote against regulating 'explosive' buy now, pay later sector

MPs have voted against regulating buy now, pay later firms, just weeks after founder Martin Lewis called for the "explosive" industry to come under the financial watchdog's eye as soon as possible to protect consumers.

Update 2 February 2021: HM Treasury has confirmed plans to regulate buy now, pay later firms following the publication of the Financial Conduct Authority's 'Woolard Review', which also called for this. See Buy now, pay later firms to be regulated – and all shoppers will face affordability checks for more info. 

Labour MP Stella Creasy put forward the amendment to the Financial Services Bill 2019-21, which was debated in the House of Commons last night (13 January 2020). It called for buy now, pay later credit services - which allow shoppers to spread the cost of buying something over weeks and months and are offered by the likes of Clearpay, Klarna, and Laybuy - to come under the regulation of the Financial Conduct Authority (FCA).

Martin has previously said it's "outrageous" that buy now, pay later products, which are the fastest growing form of credit in the UK, aren't regulated in the way other credit products are. While the products can be useful for some when used right, the problem is lenders don't have to follow as many stringent rules - so there are no hard credit-checks to deem your affordability, and there is no option to go to the free Financial Ombudsman Service if something goes wrong.  

But despite several MPs voicing support for the amendment and calling for immediate action on buy now, pay later products, it was eventually defeated by 355 votes to 265. See our Buy Now, Pay Later guide for more on how they work.

What did MPs say?

Several MPs spoke in favour of the amendment during the debate in Parliament, citing the recent rise in the use of buy now, pay later products and the risk that customers may spend more as a result of using them. 

Shadow economic secretary to the Treasury Pat McFadden MP, for example, said the model of buy now, pay later lenders is "based on encouraging people to buy more", while Ms Creasy said there was a risk that consumers were taking out more debt to repay what they owed. 

Others pointed out that the industry is targeted at younger consumers and is often advertised using celebrity influencers, with Labour MP Jessica Morden describing buy now, pay later products as "uncontrolled and operating with a social media-savvy face". Meanwhile, Liberal Democrat MP Christine Jardine called for the products to be regulated "before we have another scandal". 

However, other MPs argued that Parliament should wait for the publication of a review on the buy now, pay later industry, which is being led by former interim chief executive of the FCA Christopher Woolard, before deciding whether to regulate. 

Conservative MP Angela Richardson said "the Government should not legislate until we hear from the experts" and warned that there was a risk that by protecting one group of consumers, other groups could be prevented from using the products to buy much-needed household goods. 

Martin: 'BNPL must be regulated - action is needed'

Martin warned the Treasury Committee in December 2020 that action on buy now, pay later firms was needed within two months rather than two years. He repeated this call later the same month, after the advertising regulator banned four "irresponsible" Instagram posts promoting buy now, pay later firm Klarna following a complaint by Ms Creasy. 

At the time, Martin said: "Buy now, pay later is designed to encourage increased spending, and can lead to overspending. Get buy now, pay later wrong and missed payments can damage your credit file for the long term, see late payment fees levied and even debt collectors sent to your door...

"It's outrageous that this, the UK's fastest growing credit sector, is exempt from standard credit regulation. That must change. The Financial Conduct Authority should be overseeing product design and marketing. And crucially, consumers need a right to take complaints to the free and independent Financial Ombudsman Service."

What else was debated? 

MPs also debated proposed amendments related to so-called "mortgage prisoners" - homeowners who are unable to remortgage to a cheaper deal with another lender because they don't meet strict borrowing criteria brought in after the 2008 financial crash. 

These would have capped standard variable rates (SVRs) paid by mortgage prisoners, and required mortgage holders to consent before their mortgage is sold on to an inactive lender. But MPs didn't vote on these changes so they therefore won't be part of the legislation. 

Economic secretary to the Treasury, John Glen, also referenced Martin's views on this during the debate, pointing out that he recently funded a landmark report by the London School of Economics (LSE) which puts forward practical policy solutions to help mortgage prisoners. 

The Bill will now pass through the House of Lords before it can become law.

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