The UK financial regulator has said “buy now pay later” credit products offered by retailers and fintechs such as Klarna must be covered by its rules “as a matter of urgency” because of a “significant potential for consumer harm”.
In a review of the unsecured credit market carried out by former interim chief executive Christopher Woolard, the Financial Conduct Authority warned that billions of pounds were now lent in unregulated transactions and millions of consumers were at greater risk of financial difficulty.
Usage of BNPL products nearly quadrupled last year, taking total lending to £2.7bn, with 5m people using them since the beginning of the coronavirus pandemic. However, more than one in 10 customers of a major bank using BNPL is already in arrears. Mr Woolard’s review concluded that regulation would protect people who use BNPL products and make the market more sustainable.
“Changes are urgently needed: to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic,” he said when announcing his findings on Tuesday.
His review has set 26 recommendations for how the FCA, working with partners, can improve the market.
Among the other measures Mr Woolard proposes are providing alternatives to high-cost credit — for example, through local and workplace credit unions and Community Development Finance Institutions — and greater consistency in the support lenders offer consumers struggling to pay.
In response to the review, FCA chair Charles Randell has written to the Treasury proposing that the regulator works with the government to design the appropriate new lending rules.
Labour MP Stella Creasy said the regulator had finally heeded warnings on the risks posed by BNPL. ‘‘The FCA has confirmed what we have been warning the government of for the past year — that the behaviour of the BNPL industry presents a clear risk to consumers and needs urgent action . . . with evidence millions used this form of credit to pay for Christmas, regulation cannot come soon enough.”