Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what recent assessment he has made of the adequacy of regulatory checks on buy now pay later apps including Clearpay and Klarna.

Interest-free Buy-Now Pay-Later (BNPL) agreements repayable in under twelve months and in twelve or fewer instalments are currently unregulated. Firms offering these agreements do not currently need to comply with the Consumer Credit Act 1974. Firms which solely offer these agreements do not currently need to be authorised by the FCA.

BNPL is currently subject to some regulation, outlined below, however the Government’s assessment is that this regulation is insufficient to wholly address the potential risks of consumer detriment arising from BNPL products. Therefore, on 2 February 2021 the Government announced its intention to regulate BNPL products in a proportionate manner. The Government published a consultation on policy proposals for the regulation of BNPL on 21 October 2021, which closed on 6 January 2022.

The Government is now reviewing responses to this consultation and considering next steps and intends to publish a consultation response in the spring.

Despite not currently being regulated by the FCA, firms offering BNPL must comply with the rules set out in the UK Advertising Codes, and are also subject to the Consumer Rights Act 2015, concerning the fairness of their contract terms, and the Consumer Protections from Unfair Trading Regulations 2008 in relation to unfair commercial practices. Offending firms can be referred to Trading Standards and OFCOM for further action where necessary. The Advertising Standards Authority also published formal guidance about BNPL on 1 December 2020 setting out its expectations on both providers and retailers when offering these services.

In addition, on 14 February 2022 the FCA announced it had secured changes to potentially unfair and unclear terms in the contracts of BNPL firms using its powers under the Consumer Rights Act 2015. Some of these firms also agreed voluntarily to refund some customers who were charged late payment fees.