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Millions of shoppers using buy now pay later services will now have to be tested to see if they can afford it.
Buy Now Pay Later (BNPL) is a type of loan that is usually paid in installments — but it has only been regulated since July.
Lenders such as Klarna and Clearpay now have to conduct stricter background checks on the shoppers’ ability to repay.
Those who fail the checks can be blocked, but there are things to consider if a BNPL account is closed.
What are the new rules?
BNPL options often appear at online checkouts and allow shoppers to spread the cost of their purchase without paying interest, rather than having to make a payment in one go.
But for a long time shoppers have had fewer rights than someone buying the same item with a credit card or a personal loan when seeking a refund after buying faulty goods.
The new regulations give shoppers more access to refunds and independent rights on complaints if anything goes wrong.
Rachel Blake, economic secretary to the Treasury, said: “We made a clear promise to give consumers the protections they deserve and today we are delivering.
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“It is not fair that people using these products have had fewer rights than if they had paid by credit card. These new rules protect the consumer — with proper checks before credit is offered, real rights when things go wrong, and support rather than pressure if someone falls into financial difficulty.”
Under the new rules, providers must carry out affordability checks before offering credit, meaning no one should be borrowing what they cannot realistically afford to repay, helping people avoid getting into avoidable, unaffordable debt.
Consumers seeking a refund for faulty goods will now have clear, enforceable rights to claim one and anyone who falls into financial difficulty will be directed towards debt advice and support first, rather than being immediately handed to a debt collector.
Why would a shopper be blocked?
The Buy Now Pay Later sector has grown rapidly in recent years, with millions of people — including many on lower incomes — using BNPL products as part of their everyday spending.
But under the new rules a shopper could be blocked from using it if they do not pass affordability checks.
However, Sara Williams, a former volunteer debt adviser at Citizens Advice who posts tips as Debt Camel on social media, shared several things to consider if your account is closed or your borrowing limit has been massively reduced.
She told the BBC shoppers should consider if what they are buying is essential, if they can avoid needing a high credit limit by buying less, if they can get help from food banks if they are using BNPL for essentials.
The charity StepChange also suggests pausing to consider whether you would still be buying the items in the first place if they were not available on credit.
The charity also suggests keeping a note of payments and the terms of each loan agreement to make sure this fits with your budget and that you will not have to cut back on essentials.
