In an effort to curtail "unconstrained borrowing," the government will on Tuesday finally reveal its long-awaited plans to regulate "buy now, pay later" businesses.
Up to 10 million people would be shielded from "exposure to financial harm," according to the Treasury.
Better affordability checks on borrowers will be required, and lenders will need to provide clearer loan information.
The Financial Ombudsman will also be a place for customers to complain about businesses.
Products that let customers pay later let them purchase goods over time, usually without paying interest. .
Even though their popularity has increased, especially among young people, they are still largely unregulated, which raises concerns about people getting into debt.
Additionally, users are not entitled to any financial relief when they are unable to make payments or compensation if something goes wrong. .
According to consumer advocate Martin Lewis, the government has been "painfully slow" in moving legislation forward since making its initial promise to regulate the industry in 2021.
The Financial Conduct Authority (FCA), which identified potential harm to customers, ordered the four largest buy now pay later operators, Clearpay, Klarna, Laybuy, and Openpay, to modify their contracts in February of last year.
In the absence of specific legislation, however, it was forced to use consumer rights law.
The FCA would have more authority under the new proposals to punish companies that violate the law, including by forbidding them from making additional loans. Businesses would also be subject to stricter regulations when it came to product advertising and would need to obtain FCA licenses.
The Treasury will release the plans as a consultation paper on Tuesday, and they are anticipated to become law before the end of 2023. .
According to Financial Services Minister Andrew Griffith, people should have access to affordable credit with clear protections in place.
The buy now pay later market in Britain increased to £2.7bn during the pandemic in 2020, nearly quadrupling its size.
People of all ages are now turning to the sector as they struggle with the cost of living, according to recent research from the Centre For Financial Capability, a nonprofit financial education organization, which highlights the urgent need for regulation. .
2,288 people who had used buy now pay later in the previous 12 months participated in a recent Citizens Advice survey.
52 percent of respondents said they made their repayments from their current account, but 23 percent said they used a credit card, 9 percent said they used an overdraft at the bank, and 7 percent said they borrowed money from friends and family.
