FCA: UK needs ‘proportionateʼ buy now, pay later legislation

The UK needs a “proportionate” approach to buy now, pay later (BNPL) legislation, according to Nikhil Rathi, chief executive at the Financial Conduct Authority (FCA).

“If we go too far, you make the product uneconomic to lend £100 or £50. That’s a delicate choice and trade-off,” he explained.

Following the UK government’s May 19 announcement on the regulation, two FCA representatives — Rathi and FCA chair Ashley Alder — answered a parliamentary inquiry on regulating BNPL providers before the Treasury Committee on June 10.

With the legislation moving forward, Rathi urged the committee to consider a “balance” between social and financial concerns, adding: “We do see the benefits of BNPL for a significant number of consumers, who find it convenient, beneficial and a better alternative to other forms of credit, particularly for small sums of money.

“We have been asked [to regulate] this product for five years. It’s now making its way through parliament. [However], we need to make an overall judgement around information provision, around the proportionality of credit checks.”

Growing dependence on BNPL

Labour MP Lola McEvoy expressed concerns over UK adultsʼ growing dependence on BNPL products. “There is a concern that people are using BNPL just to get through day-to-day spending. I know there are some takeaway outlets where you can use it,” she said, warning if people were “stretched this could lead to financial trouble”.

Rathi said: “In the north of England, I’ve seen cases of single mothers who have used BNPL for baby food [and] for nappies, and found extreme difficulties having bailiff coming to their doors. That clearly is a very unfortunate outcome of having this product unregulated.”

The FCAʼs latest Financial Lives 2024 survey, published on May 16, found that a fifth of UK adults had used BNPL products — meaning 10.8 million had resorted to it at least once in the 12 months prior to May 2024.

In addition, the January 2023 survey found a tenth of BNPL customers had missed one payment. One third of UK BNPL customers also borrowed money to pay for their instalments, based on the consultation paper published in October.

Affordable, instant credits

The UK watchdog recommended affordability checks on BNPL consumers, in its 2021 Woolard Review. While the proposed checks could address the risks of unaffordable debt, it remained important to consider broader societal factors, particularly financial inclusion, said the committee.

A key benefit of BNPL is to make credit more affordable by offering interest-free instalments, provided payments are made on time. Compared to other forms of credit, BNPL typically offers lower barriers to access, with instant digital approval.

“I hope we are getting better at striking the right balance,” said Rathi. “It’s not about pushing people towards credit unions but about making the whole market work effectively.”

The FCA promised a “better-informed” dataset once it has the power to regulate the sector.