Proactive Investors - The UK government has announced new rules that will require Buy-Now-Pay-Later (BNPL) companies like Klarna and Afterpay to follow stricter regulations aimed at protecting consumers.
Under the new rules, BNPL lenders must obtain approval from the Financial Conduct Authority (FCA) before offering their services.
Additionally, companies must provide clear explanations of repayment terms, including fees and potential penalties.
BNPL users will be given stronger rights if issues arise with products they purchase, making it quicker and easier to get redress.
Klarna and its copycats have become a mainstay of online shopping, allowing customers to take out what are essentially loans to pay for goods.
These loans, typically repayable over six, 12 or 36 months, are offered at the point of checkout, but they do not currently come with the protections of other consumer credit products.
This has led to warnings from campaign groups that vulnerable BNPL users are getting into unsustainable levels of debt.
Speaking on the government’s consultation into the industry, Rocio Concha, Which?’s director of policy and advocacy, said: “Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers.
“We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.”
Sebastian Siemiatkowski, co-founder and chief executive of Klarna, welcomed the consultation: “Congratulations to (economic secretary) Tulip Siddiq and the government on moving quickly!
“They have been working with the industry and consumer groups long before coming into office. We’re looking forward to carrying on that work to put proportionate rules in place that protect consumers while fostering growth.”
Following a consultation period and legislative process, the new rules are expected to be implemented in 2026.