Yahoo Finance Shoppers with poor credit histories could be frozen out of ‘buy now, pay later’ schemes
Shoppers with poor credit histories could be frozen out of ‘buy now, pay later’ schemes as part of a Government crackdown on the controversial lending practice.
Lenders would be forced to carry out affordability checks and face tougher advertising rules under proposals laid out by the Government today – but new legislation may not kick in until midway through next year.
It will impact companies such as Klarna and Clearpay, which allow customers to pay for products in installments rather than entirely upfront.
The rapidly-growing sector, which is particularly popular among younger shoppers, has drawn the attention of regulators with concern such offers could leave people saddled with large amounts of debt.
John Glen, economic secretary to the Treasury, said: “Buy now, pay later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.”
“By holding buy now, pay later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”
Any government regulation may not kick in until 2023, with the Treasury saying it needs until later this year to publish draft legislation due to the “complexity” of the sector.
The new rules will be extended to other types of interest-free credit on purchase such as dental work and furniture. The Treasury said: “the risks posed are similar and consumers should receive consistent protections from similar products”.
Buy now, pay later companies experienced a surge in popularity during the pandemic as people stayed at home and fuelled an ecommerce boom. Such services are often offered alongside regular payment options on online shops.
The sector has hit more difficult times recently, however, over worries about the cost of living crisis and ructions in the global tech sector.
Klarna, which is based in Sweden, has been forced to raise money at less than half its peak valuation of $46bn (£37.6bn), according to reports.
The company cut its workforce by 10pc in May, blaming changing customer behaviour and economic ripples from the conflict in Ukraine.
