Unveiling transparency: the key to cultivating ethical Buy Now, Pay Later

By: Samantha Fogerty, chief operating officer of Payl8r.

As of 2024, fifty percent of UK adults have used buy now, pay later (BNPL), accounting for an estimated 26.4 million Brits. The absence of credit reporting across the market has meant that almost a third of BNPL users due to make a payment in November 2023, have borrowed money to repay their instalments, indicating a worrying debt spiral. With this growing number of people defaulting on their loan repayments, there is a clear requirement for regulation and transparency to protect consumers.

Slow progress to regulate the market

The UK government has been hesitant to regulate the market to push responsibility onto lenders. After announcing plans to regulate the sector in 2021, the government released a draft of new rules in 2023 but has yet to publish a response to the consultation that followed. If the market remains unregulated, consumers can continue to take out multiple loans leading to more debt, as these are not reported on credit files. There is scope for BNPL to operate in an ethical way, but to do so, authorities must step up and provide more protection for customers by forcing lenders to be more transparent.

Current issues with

Many BNPL lenders have been able to disguise their offering, almost as if it were free money, by implementing lax approval processes, accessible to many. The lack of visibility on credit files has allowed consumers to obtain credit from any BNPL provider, while still being in arrears with another. As a result, many consumers have found themselves falling behind on payments, causing them to grapple with the burden of accumulating debt whilst evading detection by lenders. One in five BNPL users have missed or made a late payment in the year prior to November 2023, with one in ten of those visited by an enforcement agency or bailiff as a result.

It is clear that tighter regulation is needed to protect consumers. However, the proposed frameworks are likely to place larger, unregulated BNPL firms in a difficult position. Managing the financial promotions for the many thousands of merchants they already work with will be a costly and resource heavy task, perhaps even impossible for some of the giants in the industry.

FCA regulation also brings with it the incorporation of Section 75 liability, combined with the Financial Ombudsman (FOS) service charge of £750 per case. This triggers a huge cost implications for unregulated market leaders. Even if complaints are unfounded and not upheld, the lender will still be forced to pay this charge, a cost that could be detrimental to many.

Regulation will also have an impact on merchants who may be passed down some of these costs. Additionally, strict rules about promotion could create issues for brand messaging, with disclaimers becoming larger than the promotion itself.

Long awaited steps towards ethical lending

While there are potential roadblocks to successful regulation, the current lack of robust measures continues to expose consumers to financial risks. The year 2022 to 2023 saw a 67% increase in people seeking help from Citizens Advice with BNPL debt, highlighting exactly why there is a need to educate people on the potential implications of taking these out loans.

The industry won’t change on its own. It is down to the government to enforce proportionate regulation and finally implement the draft laws. Regulators and the BNPL industry need to collaborate to ensure FCA regulations are enforced in a way that is realistic for the market, whilst protecting the financial safety of customers.

Time to take accountability

As this topic is ongoing in government discussions, my hope is that action is taken to enforce tighter regulations which help to enhance more ethical lending. While ‘ethical’ and ‘BNPL’ are not often found in the same sentence, I strongly believe that if the industry and government can balance protection for consumers without this overshadowing the advantages of BNPL, ethical lending can thrive. I have seen firsthand the benefits that BNPL can bring to consumers – the last thing the we need is to wrap lenders up in so much red tape that they are struggling to breathe.

Implementing proportionate regulatory measures may make the process a little trickier for lenders, but this action is essential in the long-term to foster a sustainable BNPL market. By striking the right balance between innovation and oversight, regulators can cultivate an environment where BNPL services exist as a tool for financial empowerment rather than a source of financial hardship.


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