...but it should not nullify benefits of BNPL arrangements, says ii.
- Under plans set out by the government today it confirmed that Buy Now Pay Later (BNPL) lenders will be required to carry out affordability checks, ensuring loans are affordable for consumers.
- Financial promotion rules will be amended to ensure Buy-Now Pay-Later advertisements are fair, clear and not misleading.
- Lenders offering the product will need to be approved by the Financial Conduct Authority (FCA), and borrowers will also be able to take a complaint to the Financial Ombudsman Service (FOS).
Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Regulation of the BNPL is long overdue. As the escalating cost of living crisis risks people turning to BNPL schemes to help tide them over, the worry is the plans will not be implemented soon enough.
“BNPL is a form of debt, and, as such should be subject to the same rules that govern the traditional credit industry, requiring things like affordability checks and allowing borrowers to be able to take a complaint to the Financial Ombudsman Service.
“BNPL services aren’t intrinsically bad. They offer an alternative and often frictionless way to buy goods on credit. Repayments are interest free and signing up for such arrangements is often fast. It is important that any rules and measures applied to the BNPL industry do not nullify these benefits.
“But greater protection for consumer is overdue. BNPL arrangements have become like a drug for many consumers, particularly young adults, used to buy coveted clothing and must-have gadgets owned by their idols without having the cash in the bank to fund these purchases in full. You can even buy essential groceries through some BNPL services which could be a shortcut to unmanageable debt.
“Many BNPL services don’t subject customers to a hard credit check. As such, a key issue with BNPL is it may attract people who are already in the red and may be struggling to pay existing bills. So, it is likely that a large number of people making BNPL repayments are also racking up credit card debt.
“The explosion of this form of lending in recent history underlines the importance of financial education from a young age. While it might be tempting to delay payment – and BNPL adverts can be very enticing and sometimes misleading - it can be a slippery slope into debt.
“It is only right that the credit market continues to evolve with time to cater for changing attitudes and requirements, but innovation without regulation spells danger for consumers.”
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