Buy now, pay later regulation confirmed by Government – but vital protections still won't be in place for months

MoneySavingExpert.com (MSE) and its founder Martin Lewis have long called for urgent regulation of buy now, pay later (BNPL) products amid the "explosive growth" of this form of borrowing.

Today's publication of the draft legislation comes over two years after the Government originally said it would regulate the industry. But the new rules won't take force for months to come as the draft laws are subject to consultation and Parliamentary approval.

Last year, while welcoming the Government's proposals, Martin expressed his frustration with how long it was taking to get the new rules in place, adding: "Buy now, pay later is often insidiously marketed as a simple payment option, or worse, a lifestyle choice. It’s not. It’s a debt, with all the dangers of debts."

See our Buy now, pay later guide for how it works and what to look out for.

What the new rules will likely mean for consumers

Once they come into effect, the Government's new rules will mean that:

• Lenders will need to ensure BNPL advertising is clear, fair and not misleading. Firms such as Clearpay, Klarna and Laybuy will be required to follow existing advertising rules on financial promotions, which should ensure that advertisements are clear about BNPL being a form of credit.

• You'll get powerful Section 75 protection on purchases made using BNPL. This will apply for items costing over £100 but not more than £30,000, as it does for credit cards currently. It means the BNPL provider will be jointly liable with the retailer if anything goes wrong. See our Section 75 guide for more info.

• You'll have the right to complain to the Financial Ombudsman Service (FOS). Currently, the only way for most consumers to complain about BNPL firms is directly to the firm itself. However, the new legislation is designed to give consumers increased protections by enabling complaints to be taken to the FOS if the lender has failed to respond or if complainants are unhappy with the response they do get. This change will mean complaints procedures for BNPL firms become aligned with those of traditional lenders.

• Regulator the Financial Conduct Authority (FCA) will make sure the new rules are being met by BNPL firms. Lenders offering BNPL will need to be approved by the FCA in order to lend.

It's also likely that consumers will face tougher affordability checks when taking out a BNPL agreement – but this will be down to the FCA to decide. We've asked the regulator for more information on how this will work in practice and we will update this story when we know more.

The new rules are still months away

The draft legislation is currently under consultation until 11 April 2023, and will then be subject to Parliamentary approval. The Government says its "ambition" is to bring the final legislation before Parliament this year. 

A separate FCA consultation will also have to take place, though the Government says its legislation can take force before the regulator's rules are confirmed.  

How buy now, pay later works

With BNPL, instead of paying at the till or online checkout, the BNPL firm pays the retailer for you. You then agree to pay the BNPL firm back over a few weeks or months, meaning you can spread your shopping costs. It's interest-free and fee-free but miss a repayment and you risk being charged late fees.

See our Buy now, pay later guide for more information.