Buy Now Pay Later UK schemes offered by companies like Klarna and Clearpay have been around for a while now.
BNPL schemes are a simple form of interest-free credit that allows users to purchase a product or service in the present and then pay for it at a later date.
Some schemes allow the users to pay the money back in instalments, increasing the customers buying power.
However, following concerns that these schemes may lure consumers into unaffordable debt, the Treasury has planned to take action.
As of now, the Buy Now Pay Later schemes are not regulated by the FCA (Financial Conduct Authority), but that’s planned to change soon.
Recently, the Treasury has announced a detailed outline of the regulatory actions they plan to take in order to make the BNPL schemes safer for shoppers.
In this article, we explore the latest updates regarding the new rules proposed for Buy Now Pay Later Schemes and how they will affect you.
1. Lenders Will Now Need To Be Approved By The FCA
As per the latest updates, soon all BNPL lenders will have to get approval from the FCA to provide credit facilities to consumers.
This is essential because while these credit facilities are interest-free, some of them charge unreasonably high fees, if you’re late on payments.
Once approved, the BNPL schemes will have to work in accordance with the guidelines issued by the FCA making them much more reliable and safer for consumers.
2. Lenders Will Now Have to Conduct Affordability Assessments
One of the most crucial and effective guidelines proposed is to do with affordability checks.
Previously, this was not compulsory. As a result, most lenders would provide credit limits to users with severe prior debt. Although these credit limits were small and increased based on the repayments, it wasn’t a system that was in favour of consumers.
Unlike previously, once regulated all BNPL lenders will have to perform credit checks on consumers to provide fair credit facilities.
It was recently observed that a large number of users were actually using the BNPL schemes to purchase necessities and were paying them back with other forms of debt.
Therefore, this action is to be implemented in an attempt to protect consumers from spiralling into debt and help them to manage their expenses better.
Now the next time someone searches, “buy now pay later uk no credit check,” on Google, they probably won’t find what they’re looking for.
3. Adverts Regarding the BNPL Schemes Can’t Be Misleading
To those without an intimate knowledge of UK financial law, many BNPL’s were implementing misleading advertisements that were dangerous to consumer’s financial situations.
With many retailers marketing BNPL schemes with different strategies like offering free delivery or coupons, the customers may sign up, entirely unaware of the downsides.
Therefore, the latest proposed rules dictate that ads regarding buy now pay later lending needs to be fair, clear and not at all misleading.
4. Users Can Now Take Their Complaints to The Financial Ombudsman
Previously, any complaints regarding the facilities or inefficiencies of BNPL lenders were not addressed by any ombudsman.
However, under the latest rules regarding the regulation of buy now pay later schemes, users will be able to take their complaints to the Financial Ombudsman.
This will allow users to pursue justice and have their complaints with BNPL lenders settled in a far fairer legal manner, if the need arises.
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While the new rules are going to take some time to be implemented, you can rest assured that they are being put in place to protect consumers.
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