Government consultation on BNPL regulation closes

The government consultation on how to regulate buy now, pay later (BNPL) services closed in April 2023, according to Which?¹. The consumer body reported that BNPL could be regulated by the Financial Conduct Authority by the end of 2023, depending on the outcome of that consultation¹.

BNPL services allow shoppers to spread the cost of purchases, often interest-free over the short term, but they are not currently regulated, which Which? said means users have fewer consumer protections than with more traditional credit products¹. Regulation would also mean customers could take complaints to the ombudsman¹.

Over a third of UK shoppers have used BNPL services to spread the cost of purchases, according to credit reference agency Equifax, as cited by Which?¹.

The consultation sits alongside separate concerns about card protection under Section 75 of the Consumer Credit Act. Section 75 makes a card provider and the retailer or service provider jointly and severally liable for any breach of contract or misrepresentation, provided the item or service cost between £100 and £30,000¹. Which? said it would like to see Section 75 extended to cover purchases made through BNPL services, and is urging the government to ensure Section 75 remains protected in legislation¹.

Which? also reported that the Financial Ombudsman Service has called for the concept of the "debtor-creditor-supplier agreement" to be clarified and updated, arguing that new payment systems have made it progressively difficult for people to know whether a payment satisfies that requirement¹.

Why it matters for households

BNPL is currently unregulated, so users do not have the same protections as with other credit products, and cannot take complaints to the ombudsman¹. If regulation proceeds, that would change, though the timing depends on the consultation outcome¹.

Section 75 protection applies only where the item or service costs more than £100 and less than £30,000¹. Which? gave the example of a member whose claim was rejected because, although the total transaction was £139.50, each individual flight ticket cost less than £100¹. Claims can also fail where a purchase is made by a secondary cardholder who benefits but the primary cardholder does not, where goods are bought from third-party sellers or online marketplaces, or where payment is made through a third-party processor such as PayPal¹. Which? said the terms "PayPal" and "third-party payment" appeared in around 100 claims submitted to its Section 75 tool since June 2022¹.

Chargeback, which extends to debit and prepaid cards and covers purchases of any value, is not underpinned by legislation, and claims must be submitted to the card provider within 120 days of purchase¹. There is no time limit for Section 75 claims beyond the statute of limitations, which is five years in Scotland and six in the rest of the UK¹.

What happens next

Which? reported that BNPL could be regulated by the FCA by the end of 2023, depending on the outcome of the consultation that closed in April 2023¹. No further timetable has been reported. Which? said it is urging the government to ensure Section 75 remains protected in legislation and to look at updates covering purchases by secondary cardholders and payments made via third parties¹.