New rules regarding Buy-Now Pay-Later offers are to be tightened up with the government saying it will protect millions of people.
Plans have been announced that will see Buy-Now Pay-Later lenders required to ensure loans are affordable and rules will be amended to ensure advertisements are fair, clear and not misleading. Lenders offering the product will need to be approved by the Financial Conduct Authority.
While the government recognised that this easy access to flexible payments can be a helpful way to manage your finances and spread the full cost of a purchase over time they also say that people do not currently have the usual full range of borrower protections with this type of finance. As well as regulating lenders, the government will also require them to carry out affordability checks prior to lending. They’ll also be putting rules in place regarding advertising.
Essentially, Buy-Now Pay-Later will start to be held to the same standards as other forms of loan and credit agreements and the industry will have to start checking that a customer hasn’t just taken out credit with half a dozen different lenders which can lead to financial hardship when the repayments come due.
There is one argument that this type of easy finance, paying on the never never, makes it too easy to fall into debt, especially if affordability checks don’t take place. Indeed, there will be some who want to purchase with deferred payments that might in the future get turned down. The industry has a bit of a bad rep which may be mainly undeserved, and regulation should solve this image.
Buy-Now Pay-Later isn’t only used by people that can’t afford to fund their purchases in a lump sum. It’s loved by a class of buyer who routinely purchase multiple items with the intent that they’ll be returning some or all of the shipment. Fashion is the culprit, and knowing you can try on and return garments before the first payment is due makes this preferable to paying up front and then waiting on a refund. If you never paid in the first place no money changes hands except for the products you decide to keep.
No retailer likes returns, but many accept that customers will order multiple items and return a high proportion. It remains to be seen if regulation will prevent this behaviour or if credit worthy customers continue to order and return without having to dip into their bank accounts before they’ve decided what they want to keep.