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PAY DELAY
Huge Buy Now Pay Later change delayed for THIRD time as rules to protect shoppers ‘won’t happen for a year’
We explain what the steps are before new rules can come into effect
MAJOR changes to Buy Now, Pay Later (BNPL) rules that will protect shoppers are still more than a year away - regardless of which party wins the next general election, The Sun can reveal.
Beleaguered plans to regulate BNPL products have been repeatedly postponed since the Government first announced them in 2021.
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The plans have dragged on for so long that the two senior policy advisers who drafted the framework so far have now both left the Treasury, The Sun has learned.
Multiple insiders involved in discussions with both the Government and the Labour Party say that no matter who picks up the baton in July, the rules are still more than a year away from being implemented.
It comes after we revealed in January that the Government had sidelined the plans until after the election over concerns the rules could cause BNPL firms to axe their products in the UK during a cost of living crisis, which chancellor Jeremy Hunt later confirmed on ITV.
It is understood Labour plans to address BNPL regulation as quickly as possible if it is elected in July.
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However, even if work began on the policy from day one of government, which insiders say is "unlikely", it would take at least another year for any new rules to come into effect.
This is because while the Treasury is responsible for drafting any new legislation, it is actually the City watchdog, the Financial Conduct Authority (FCA), which would be responsible for regulating the products.
So, once the plans are finally legislated through parliament, the FCA will still have to create the regulations and run a consultation with the BNPL industry. It will then need to give firms time to implement any changes.
It is also understood Labour does not intend to run with the existing plans exactly as they currently are if elected and would want to make its own amendments and additions, which could add months more to the timeline.
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A Labour spokesperson said: “Labour has a plan to urgently introduce regulation for Buy Now Pay Later so that it works for consumers and the sector.
“Labour recognises that many people use BNPL products as a way to budget and pay for items.
"But the Conservatives’ constant dithering and delay on regulation has left millions of consumers unprotected and the BNPL sector in a state of uncertainty."
The Treasury and the FCA declined to comment.
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Why will it take so long to implement?
The Government first announced plans to regulate BNPL products over three years ago.
It has since run two consultations - where it approaches stakeholders in the BNPL market for feedback on its plans.
But earlier this year, we revealed the plans had been sidelined after BNPL firms warned they would axe their products in the UK if the rules went ahead in their current form.
The Government has been keen not to rock the boat too much with BNPL providers because so many families are reliant on them during the cost of living crisis, sources told us.
Now, insiders say while both parties remain committed to the plans long-term - it will be near-impossible for them to be implemented until late 2025 or even 2026.
Speaking to the Sun, one insider involved in discussions with Labour said: "Labour is arguably more keen on regulating BNPL quickly than the current Government, so they may work faster to get regulation implemented.
"But they are also unlikely to pick up the Treasury's plans so far and run with them, they'll want to make their own changes, and that will inevitably take longer - they might even require another consultation, which can take up to 12 weeks.
"Whatever happens, it's highly unlikely we will see anything implemented for at least another year."
TIMELINE TO REGULATION
REGARDLESS of which party wins, the timeline to regulation - if it is passed as primary legislation - is still distant.
Even if the government ran with BNPL regulation from day one from July 4, the following still needs to happen:
- If Labour made changes requiring further consultations: up to 12 weeks
- Legislation to pass through parliament: anywhere from two weeks to several months
- FCA to draft regulation and run consultation: up to 12 weeks
- FCA to look at feedback to consultation and make any changes: anywhere from four weeks
- FCA to publish final legislation and give firms time to implement any changes: at least six months to a year
What is Buy Now, Pay Later and why does it need to be regulated?
BNPL products allow consumers to spread the cost of purchases over a set time frame interest-free.
For example, Klarna offers a "Pay in Three" product, where customers can pay for a purchase in three interest-free monthly payments.
Around 10.1million people in the UK used BNPL in 2022-2023, according to the Money and Pensions Service.
But because BNPL products aren't regulated, users aren't currently covered by the same protections as with other credit agreements.
Banks, for example, must ensure they aren't lending more money to customers than they can afford by reviewing their credit history and finances.
But BNPL providers aren't required to carry out such stringent checks, although some firms like Klarna have introduced these checks voluntarily.
Customers of regulated financial firms are also protected by the Financial Ombudsman Service (FOS), which resolves disputes.
But BNPL users can't currently take their claims to the FOS if they think they've been treated unfairly.
One of the biggest BNPL firms told The Sun it has asked the FOS numerous times if it can be a voluntary member, but has been refused on the basis that it's due to be regulated.
Why have plans been so delayed?
Insiders involved in the discussions with the Treasury say the policy ended up being far more challenging to implement than perhaps was initially expected.
This is because many households now rely on BNPL, and introducing stringent new rules could cause some firms to decide to exit the UK market, which would cause additional financial pressure to struggling households.
There are a number of other complexities to work through, too.
For example, it is understood BNPL firms have fed back to the Government that it is unfair they would be subject to new regulations, but retailers could still offer their own BNPL plans without scrutiny.
The Treasury has therefore had to find a solution that would make the products safe for consumers while not overburdening firms with strict requirements.
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Nikki Worden, from law firm Osborne Clarke, explained to The Sun in January: "Firms might choose to exit the market as they start to recognise just how expensive it is to run a regulated lending business."
The Treasury was expected to have published a response to its latest consultation at the start of this year, but to-date this has not been released.
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