U.K. To Impose New Restrictions After A Debt-Inducing Holiday

Online spending has increased dramatically over the past year, while financial uncertainty has encouraged many to look for “safer” ways to spend their money. Many vendors have begun to offer a “buy now, pay later” (BNPL) option to encourage spending while providing people with an alternative way to afford items with bigger price tags.

Some key BNPL firms like Klarna, Afterpay, and Laybuy have dominated the United Kingdom’s marketplace with this quickly rising alternative to credit cards. These programs have been so lucrative that, just in this past year, the BNPL market has quadrupled in value to $3.7 billion (£2.7 billion). This increase has been especially prevalent with the passing holiday season.

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The U.K. government has monitored these trends in spending, concluding that it is in the best interest of their citizens to instill some regulation. Legislators worry that consumers may overestimate their ability to pay off the debts they acquire, with direct focus of concern on young adults, who often don’t have any experience with the concept of credit and can fall victim to predatory payment plans.

This new legislation will put these BNPL firms under the eye of the Financial Conduct Authority, which overlooks most of Britain’s financial service firms. The FCA would step in to make assessment on the financial standings of potential customers before allowing certain loans to be authorized. The hope is that this will prevent consumers from making deals they cannot uphold and will protect their interests from the likes of hidden contract fees or interest rates.

Most of the major companies involved are on board with the pending changes and, perhaps somewhat lukewarmly, accept suggestions as to how to proceed further within the industry under new regulation. The main concern seems to be the potential for red-tape from the vendor point-of-view. A regulation on the market has the potential to significantly decrease the number of consumers that have access to BNPL products. However, the other side of that coin promises a more likely repayment on obtained loans, as the customers will be pre-screened to ensure that they are up for the financial burden they take on.

All in all, this shift in legislation is a bitter pill to some customers and vendors, but certainly one that will ensure the health of a market which could otherwise become riddled with unwise spending habits on behalf of the consumer.