HM Treasury has today launched its long-awaited consultation on the regulation of Buy Now, Pay Later (BNPL) payments.

In February, the government announced plans to regulate pay later services after the Woolard Review highlighted the potential risk of “consumer detriment.”

The BNPL market has faced widespread scrutiny from both campaigners and consumers, as some users of the service – particularly young people – have racked up debts when they cannot afford to make repayments.

Figures published earlier this year revealed that more than one in ten customers of a major bank who use the payment service are in arrears.

The government consultation sets out policy options to achieve a “proportionate” approach to regulation of BNPL and considers the scope of regulation to target as closely as possible products where risks to consumers could arise.

It also seeks views on a range of regulatory controls that could be put in place for BNPL.

Sebastian Siemiatkowski, co-founder and chief executive of BNPL service Klarna, said that plans for proportionate regulation were in the interest of both consumers and innovation, describing the move as a “welcome step forward.”

“Ultimately, this will drive consistency and improve outcomes for all consumers, especially as we see more traditional lenders entering the sector who, as we all know, have a long history of finding dirty tricks to keep their customers in debt by adding fees and charging high interest,” said the Klarna chief exec.

In a pre-emptive move earlier this week, the FinTech launched a new feature which enables consumers in the UK to pay in full, as well as a number of changes designed to give customers more “clarity and control” over how they pay.

“Following the Woolard Review earlier this year, it is positive to see that the Government continues to recognise that BNPL is a low-risk payment option and is bringing more choice and competition into the payments market for both consumers and businesses,” said Gary Rohloff, managing director and co-founder of BNPL company Laybuy. “I am also pleased to see the Government’s distinction between BNPL and other short-term credit products available on the market that do charge interest, often at high APRs, and are increasingly being placed or marketed alongside interest-free BNPL products.”

The consultation states that proportionality is important across any regulatory intervention, suggesting there is always a “balance to be struck” to ensure that consumers are given appropriate protections without unduly limiting the availability and cost of financial products.

It said that proportional regulation would be achieved by both ensuring that the scope of new rules is defined as closely as possible to target those products where there is potential for consumer detriment and calibrating the regulatory controls that are put in place for BNPL so that they are adapted to the business model and focused on those elements of lending practice that are most closely linked to the potential risk to UK shoppers.

The consultation closes on 6 January 2022.

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