The government has announced plans to regulate interest-free buy-now-pay-later credit agreements by giving the Financial Conduct Authority (FCA) authority to protect consumers. The review led by Christopher Woolard found that the emergence and expansion of unregulated BNPL products come with significant potential harm for consumer harm and recommended regulation to make the market sustainable. 

The review found that many consumers do not view interest-free buy-now-pay-later 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.

Charles Randell, Chair at the FCA, said: "Unaffordable credit can damage the lives of people who are already struggling to manage everyday expenses. While we have made progress in reducing unaffordable debt in the years before coronavirus, the pandemic has had an unequal impact on households. Many people have been able to reduce their debts, but some of the poorest in our society have exhausted any savings or run up more debts. All the authorities which cover debt and debt advice must act together systematically to prevent problem debt and to help people get out of a spiral of debt through properly funded debt advice."

The proposed regulations would mean that buy-now-pay-later firms such as Klarna and Clearpay, available on retailers including Asos, Boohoo, Next, Nike and PrettyLittleThing, would be required to carry out affordability checks on customers and ensure the vulnerable are treated fairly.

The government has confirmed that legislation will be “brought forward as soon as parliamentary time allows” and that it will consult with stakeholders to ensure the approach to regulating buy-now-pay-later is “proportionate”.