Government to crack down on buy-now-pay-later loans

The Treasury has announced that interest-free buy-now-pay-later (BNPL) agreements are to be regulated by the Financial Conduct Authority (FCA), following the regulator’s review of the unsecured credit market

The FCA review, chaired by Christopher Woolard, found the use of BNPL products nearly quadrupled in 2020 and is now at £2.7bn, with five million people using these products since the beginning of the coronavirus pandemic.

It cautioned the emergence and expansion of unregulated BNPL products gives consumers an alternative to more expensive credit, but this also comes with significant potential for consumer harm.

As an example, the FCA research found more than one in 10 customers of a major bank using BNPL were already in arrears.

It concluded that many consumers do not view interest-free BNFPL as a form of credit, so do not apply the same level of scrutiny, and checks undertaken by providers tend to focus on the risk for the firm rather than how affordable it is for the customer.

Although the average transaction tends to be relatively low, shoppers can take out multiple agreements with different providers, with the review finding it would be relatively easy to accrue around £1,000 of debt that credit reference agencies and mainstream lenders cannot see.

With several BNPL providers planning to expand to higher value retailers, or offer their products in-store, the risk that consumers could take on unaffordable levels of debt is increasing, the FCA warned.

As a result, the review recommended that BNPL products, which are currently exempt from regulation, should be brought within the regulatory perimeter as a matter of urgency.

John Glen, economic secretary to the Treasury, said: ‘By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans.’

Legislation will be brought forward as soon as parliamentary time allows, giving the FCA oversight of BNPL providers and allowing people to escalate their complaint to the Financial Ombudsman Service if things go wrong.

Under these plans, providers will be subject to FCA rules so will need to undertake affordability checks before lending and ensure customers are treated fairly, particularly those who are vulnerable or struggling with repayments.


In total the Woolard Review set out 26 recommendations. They included providing secure, long-term funding for the provision of debt advice, and help for the poorest to pay fees when applying for debt relief orders, as well as revisions to the FCA’s approach to forbearance, reform to the regulation of credit unions and Community Development Finance Institutions in order to provide alternatives to high-cost credit, an FCA review of repeat lending, and improvements to the way credit information is presented. 

Charles Randell, FCA chair, said: ‘The review has powerful recommendations on debt advice and insolvency including on the IVA market. We are ready to work with other regulators to reduce the harm that IVAs can produce for people that use them, and to reduce the scope for unscrupulous operators to prey on vulnerable indebted people through for-profit debt packaging.

‘As the market innovates and changes, regulators and legislators need to respond quickly and decisively to protect consumers by facilitating credit where it is beneficial and clamping down on it when it does harm. The FCA agrees that there is a strong and pressing case to bring BNPL business into regulation.’

The Treasury stated that the government ‘welcomes these proposals, which it will examine and respond to in due course’.

The Woolard Review

Correspondence between Woolard and the Treasury


Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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