(Bloomberg) -- The UK’s new Labour government proposed a series of stricter rules for buy-now, pay-later lenders as it seeks to make good on an election promise to rein in the industry.
The Treasury has invited industry players to comment on proposals that would bring buy-now, pay-later companies under the supervision of the Financial Conduct Authority, according to a statement. The proposed rules would also subject BNPL providers to the Consumer Credit Act, forcing them to comply with many of the same rules as credit card issuers.
“Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow,” Economic Secretary to the Treasury Tulip Siddiq said in the statement.
The Treasury’s latest move is being viewed as a win among fintech players, some of which had concerns about the previous government’s proposals and are now being given another chance to provide feedback on the updated plans.
“We’re looking forward to carrying on that work to put proportionate rules in place that protect consumers while fostering growth.” Klarna Bank AB Chief Executive Officer Sebastian Siemiatkowski said in a separate statement.
The latest consultation period comes after years of reviews and discussions by the previous Tory government about how fast-growing firms like Klarna, Block Inc.’s Clearpay, PayPal Holdings Inc., and Zilch Technology Ltd. provide consumer credit products.
The previous government had said last year it was moving ahead with the long-awaited plans to bring BNPL lenders under the watch of the FCA and published draft legislation. It also outlined that customer complaints around BNPL would be sent to the Financial Ombudsman Service.
Those proposed rules — which already came two years after the government’s Woolard Review had said changes were “urgently needed” to regulate the BNPL industry — then went through consultation.
All along, many buy-now, pay-later providers have been in agreement that regulation is needed, though some had concerns the government’s earlier proposals relied on outdated and inflexible arrangements that would treat BNPL products like credit cards and stifle innovation.
“We welcome today’s update,” Michael Saadat, international head of public policy at Clearpay, said in the Treasury’s statement. “We have always called for fit-for-purpose regulation.”
The consultation period will close on Nov. 29 and the Treasury expects to lay final legislation in Parliament early next year, according to the statement. The FCA is expected to finalize the rules so they can take effect in 2026, which would be five years after the Woolard Review was published.
Advocates for the legislation have some concern that any new rules won’t be implemented in time for the holidays, when many consumers rely on buy-now, pay-later loans to make ends meet.
“With Christmas round the corner and retailers again pushing BNPL credit hard, its vital we warn consumers there’s no protection for this type of lending,” said Stella Creasy, a Labour MP who has previously campaigned for the regulation of payday lending in the UK. “It’s vital that they are regulated as soon as possible.”
--With assistance from Emily Nicolle and Joe Mayes.
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