The newly elected Labour government is set to begin talks on best measures to regulate the UK Buy Now, Pay Later (BNPL) sector.
UK City Minister Tulip Siddiq mentioned regulatory plans during a Parliamentary meeting last Wednesday, but a government spokesperson told CNBC that Labour will proceed with the plans “shortly”.
Siddiq highlighted the largely unregulated UK BNPL market as a focus in her new role and stated that the government is “looking to work closely with all interested stakeholders” such as Klarna and Afterpay.
Klarna has been vocal in its support of regulation despite talks being routinely stalling over the last several years by the Treasury.
With the surge in BNPL’s prominence not just in the UK but all across the world post-COVID, discussions in the country began on whether or not consumers are being protected from the instalment-based payment method.
For a majority of BNPL companies, interest fees are attached to payment instalments that can range anywhere from one to six months, whereas some companies do not attach any interest.
However, some BNPL operators, such as Klarna, have introduced late payment charges to warn consumers that if they are unable to pay for their goods in the allocated time then they should avoid using the payment method.
There is no current overarching standard when it comes to interest and credit guidelines across the UK BNPL sector. This has led to campaigners calling for regulation to adopt industry standards to best protect consumers from falling into potential debt.
The previous Conservative government introduced plans to regulate the sector in 2021. However, due to global and national economic issues, as well as a revolving door of outgoing and incoming Prime Ministers, talks stalled and remained shelved in 2022.
Under previous proposals from the former government, it aimed to grant the Financial Conduct Authority (FCA) oversight of BNPL. That’s not to say the financial agency has been issuing warnings regarding BNPL consumer safety.
The main sticking point in regards to BNPL regulation is whether it will largely adopt most guidelines and rules that financial credit and lending institutions abide by. Klarna and other companies have opposed this proposal, suggesting that BNPL is a safer consumer avenue than credit cards and other credit options.
Conversely, the US have also been open in their talks surrounding BNPL regulation, with the US Consumer Financial Protection Bureau opting for similar consumer protections as credit card users.
The agency stated that BNPL firms should make refunds for consumers who return or cancel goods and investigate the dispute over the initial refund.