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Buy Now, Pay Later: Regulation

Volume 835: debated on Wednesday 7 February 2024


Asked by

To ask His Majesty’s Government, further to the publication of draft legislation on ‘Buy Now Pay Later’ arrangements in early 2023, when they intend to fulfil their 2021 commitment to regulate such arrangements.

My Lords, the Government’s consultation on proposed draft legislation to bring buy now, pay later into regulation closed in April 2023. In it, the Government reiterated their position that regulation must be proportionate so that borrowers are appropriately protected without unduly inhibiting access to these useful, interest-free products.

My Lords, I have to say that I find the Answer from the Minister deeply disappointing. It is three years since the Woolard Review concluded that more needed to be done to ensure a healthy, sustainable market in unsecured credit, including, in particular, buy now, pay later. Since that time, the use of buy now, pay later has more than trebled, with the citizens advice bureau warning that consumers are left without vital consumer protection and reporting from its own experience a huge rise in the number of people needing services to deal with the problems created by this form of credit. Is that not just evidence that this is no longer a serious Government prepared to undertake tasks to protect ordinary rank and file people?

I disagree with the noble Lord. Obviously, we have received a large amount of stakeholder feedback to the consultation on the draft regulations. We are considering that feedback and it is very varied. In many cases, when provided affordably and used responsibly, interest-free credit can be incredibly helpful to people trying to balance certain payments from month to month. The average outstanding balance of buy now, pay later is £236. These are relatively small amounts of money that can be shifted from month to month, and it is proving incredibly useful to a number of people.

My Lords, buy now, pay later works for people who can manage their finances, but unfortunately, there are many who struggle with that management. What are the Government doing to make financial education a pillar of the school curriculum?

I agree with my noble friend that this is at the heart of it. Any credit facility, be it interest-free or not, has to be understood by those who use it. To that end, the national curriculum has included financial education since 2024. In primary schools, children learn about the uses of money. In secondary school, they go on to learn about budgeting and managing risk, which is of course incredibly important in the credit markets. They learn about financial products and services and raising and spending public money. We have put those elements in place.

My Lords, a number of the firms that provide buy now, pay later—which are of course unregulated schemes currently—are seeking authorisation from the FCA also to offer regulated credit schemes. As we saw with the mini-bond scandal, this mixing of regulated and unregulated lulled ordinary people into misunderstanding the absence of supervision for unregulated products and led them into serious financial distress. Will the Minister advise the FCA not to authorise any schemes for buy now, pay later firms until buy now, pay later is itself properly regulated?

While it is fair to say that buy now, pay later itself is not regulated, many elements of getting out to consumers are regulated. The broader consumer protection legislation which exists provides such protections. For example, the FCA has rules and guidance on advertising and financial promotion. Only today, the FCA financial promotions gateway is in force. Buy now, pay later firms must also go through that gateway with all their marketing materials to ensure that they are not misleading, and that is to the benefit of consumers.

My Lords, a study last year by the Centre for Financial Capability found that a quarter of buy now, pay later users had been hit by late payment fees. That figure rose to 34% for users aged 18 to 34. Those young people are also facing the problems of the weight of student debt: about half of them go to university and, increasingly, they are carrying debt as well for further education. Is this not just one more way of laying a huge weight of debt on our young people?

I do not believe so, because, as I said, it is not a huge amount of debt. The average balance for younger people aged 25 to 34 is just £185. One experience that I think many users have of buy now, pay later is that they may, once, have a late fee—I know that my children certainly have—and then they learn, and they do not do it again. Those fees are not particularly expensive, but Experian, for example, would say that 99% of agreements were settled on time in January and February. We cannot shut off access to a form of interest-free credit which has saved consumers more than £100 million. It is really important that we get the balance right.

My Lords, in February 2021, the Government promised to act swifty to regulate buy now, pay later. Three years later, legislation is nowhere in sight. While the Government have delayed, leaving millions of consumers unprotected, Labour has set out plans for regulating the sector. That includes a requirement for clearer information, while ensuring the same protections for consumers as they get when using a credit card. To move things along, will the Government now adopt Labour’s plan, which has received broad support from all major buy now, pay later providers?

I have to be honest with the noble Lord in saying that I have not read Labour’s plan, but he talked about clarity of information. It is worth pointing out that it is not just the FCA that looks at advertising and financial promotion. We have the Consumer Protection from Unfair Trading Regulations 2008; we have the Consumer Rights Act, and then we have the UK advertising code. In terms of information, it is clear that consumers have a number of recourses, but I return to what I said at the outset: the consultation closed in April 2023; the Government have reiterated our position that regulation must be proportionate. I am quite surprised that the Labour Party thinks that it has a solution that has been backed by all buy now, pay later firms, because it is a very complex area and we need to achieve a balance.

My Lords, buy now, pay later services may offer interest-free periods, but, as has already been said, they charge high interest rates and fees for late payments, which really push up the price of the product. Without regulation, this industry is likely to go the same way as pawnbrokers, who charge interest of up to 160%. Will the Government impose a ceiling for the fees and interest rates that this industry can charge?

I am not sure whether the noble Lord has looked at what the late payment fees are for buy now, pay later firms. They are incredibly small, because the business model is very different in that it does not necessarily rely only on such charges; they are paid by the retailers as well. As I said, all sorts of existing and broad consumer protections underpin fair contracts—that would be the Consumer Rights Act. The FCA has already taken action against six buy now, pay later firms, where it felt that the contract terms were either unfair or unclear. The system is working; it is a very complicated area; the Government are looking at the responses to the consultation, and we will publish a response in due course.

My Lords, does my noble friend accept that, if we do not do this carefully, we will be removing opportunities from a large number of people for whom this is important? Is not the rush to regulate a very dangerous concept in this case?

I do not always. There seems to be a “computer says no” attitude to newfangled things. I absolutely reject that. While noble Lords may or may not use buy now, pay later, I know many young people who do, and they do so very successfully. I would not want to overregulate a product or get it wrong, thereby causing that product to be removed from the market.

The Minister says that there needs to be regulation, that the Government have gone out for consultation and that they are now considering it. To ask the same question I ask of Ministers all the time: where is the timeline for that? When will the Government act rather than talk?