Treasury announces plans to regulate BNPL providers

The Treasury announced in February 2022 that buy now pay later (BNPL) providers are to be regulated, and said it will bring forward legislation "as soon as parliamentary time allows"¹. The announcement covers providers such as Klarna, Clearpay and Laybuy, which offer short-term interest-free borrowing and are not currently regulated by the Financial Conduct Authority (FCA) because they do not charge interest¹.

The FCA had already called for the market to be brought within its rules. In February 2021 it said BNPL must be covered by its rules "as a matter of urgency" because of a "significant potential for consumer harm"¹.

Until legislation is passed, BNPL users have fewer protections if something goes wrong, and providers do not have to follow the same rules as other credit providers¹. Most BNPL providers carry out only light-touch credit checks, and short-term interest-free BNPL borrowing does not have to be recorded on credit reports in the way regulated credit does. Some providers now report to credit reference agencies and others do not¹.

Costs and terms vary between providers. Clearpay and Laybuy charge a £6 late fee, while Klarna does not charge fees for late payments, and PayPal "Pay in 3" takes three interest-free payments automatically from a customer's account each month¹. Typically BNPL schemes allow payment to be delayed for between 30 days and six weeks, and allow bills to build up to as high as £2,000¹. Missed or unpaid amounts can be noted on a credit report and the mark can stay there for six years¹.

Separate survey work by Citizens Advice, reported in June 2022, found four in 10 BNPL customers had borrowed money to make their repayments in the past 12 months, rising to 51% among 18 to 34-year-olds. Credit cards were the most common form of borrowing used, alongside overdrafts, personal, guarantor or payday loans, and borrowing from friends and family. The survey covered 2,288 BNPL shoppers¹.

Why it matters for households

BNPL borrowing sits outside FCA regulation for now, so the protections attached to other consumer credit, including how complaints and affordability are handled, do not apply in the same way¹. The Treasury's stated intention is to change that, but no date has been set: the legislation depends on parliamentary time¹.

In the meantime, the practical position for anyone using buy now pay later providers is unchanged. Late fees of up to £6 apply at some providers and not others, repayment dates can fall between 30 days and six weeks after purchase, and balances of up to £2,000 can accumulate across several providers¹. Because reporting to credit reference agencies is inconsistent, a BNPL balance may or may not appear on a credit file¹.

The Citizens Advice findings indicate that a substantial share of BNPL users are covering repayments with other borrowing, which carries its own interest and fees¹.

What happens next

The Treasury has said it will bring forward legislation "as soon as parliamentary time allows"¹. No date has been announced, and the point at which HM Treasury's plans take effect for consumers has not been reported. The FCA's February 2021 call for urgent regulation remains its stated position¹.