Regulation for BNPL services is expected soon due to rising debts associated with them.
- City Minister Tulip Siddiq voiced these concerns at the Labour Party Conference.
- BNPL allows consumers to spread purchase costs but is often unregulated, posing financial risks.
- Concerns stem from anecdotes of consumers facing deep debt spirals due to unclear terms.
- BNPL firms are in discussions with regulators, showing a willingness to accept oversight.
The regulation of ‘Buy Now Pay Later’ (BNPL) services is imminent, according to City Minister Tulip Siddiq, who has expressed concerns over the increasing debt associated with these services. At the Labour Party Conference, Siddiq announced the commencement of the regulatory process, aligning with Labour’s commitment to implement stricter oversight on BNPL offerings.
BNPL services provided by firms like Klarna, Clearpay, and Zilch allow consumers to split payments for purchases over several weeks or months. However, the lack of regulation has prompted consumer and regulatory bodies to caution that these payment schemes resemble unregulated loans, often without clear communication of the risks involved.
Highlighting distressing anecdotes from affected customers, Siddiq emphasised the urgency of regulatory intervention, describing a “huge spiral of debt” that many have encountered. Despite acknowledging a role for BNPL within financial services, she criticised its exploitation of vulnerable individuals, drawing parallels with payday lending and gambling outlets.
Siddiq reassured stakeholders of imminent regulatory announcements, sharing that dialogues with BNPL companies reveal their willingness to embrace regulation. Companies such as Klarna and Zilch have already initiated measures like credit agency reporting in anticipation of regulatory changes.
Luke Charters, a Member of Parliament and chair of the Fintech All-Party Parliamentary Group, voiced further scepticism, particularly pointing out the inappropriateness of BNPL for trivial purchases, such as takeaway food, which he believes constitute a significant misuse of the service.
The forthcoming regulations aim to curb the exploitation of BNPL services by instituting necessary oversight and protection for consumers.
