The government has set out its long-awaited plans to regulate Buy Now, Pay Later (BNPL).

Under the new rules, BNPL firms will be forced to carry out affordability checks to make sure the service is affordable to all consumers that opt to use it.

The government is also changing financial advertisement rules so that adverts are “fair, clear, and not misleading”.

Any lender that offers BNPL will also now need to be approved by the Financial Conduct Authority (FCA).

When the rules come into force, those that use BNPL credit schemes can take complaints to the Financial Ombudsman Service (FOS).

The new rules won’t be effective for some time, as the government will publish a consultation on draft legislation towards the end of the year.

The government plans to lay secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.

“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,” said economic secretary to the treasury, John Glen. “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.”

The move comes over a year after the FCA published its Woolard Review, which called for stricter boundaries on Buy Now, Pay Later services.

Alex Marsh, head of Klarna UK, said that the BNPL firm welcomes the government’s plans as it will “raise standards and consumer protections” across the sector.

“We urge the Government to move quicker than planned to implement regulation which gives additional protections to consumers from both irresponsible, unregulated BNPL providers and traditional banks disguising high interest products as ‘BNPL’,” said Marsh.

BNPL company Laybuy said that it had always been in favour of a “proportionate model of regulation” that reflects the “low risk of BNPL”.

“Naturally, we need to have a look at the consultation response in full, but we’re supportive of the Government’s approach and we look forward to working closely with the FCA on the next steps,” said Gary Rohloff, co-founder and managing director of Laybuy.

The government has said that it will extend these new rules to cover other forms of unsecured short-term credit, like those used for dentistry work or furniture.

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