Buy Now Pay Later rules to bring refunds and rejections

Breaking news from the markets: Buy Now Pay Later rules to bring refunds and rejectionsImage source, Getty ImagesByKevin Peachey Cost of living correspondentPublished14 minutes agoShoppers using Buy Now Pay Later (BNPL) services have stronger rights but some will be refused loans, as new rules come into effect. From Wednesday, BNPL lenders must have regulator approval to operate, giving shoppers more access to refunds and independent rulings on unresolved complaints if things go wrong. Providers such as Klarna and Clearpay have become huge operators allowing consumers to pay in interest-free instalments, but campaigners have often described the wider sector as an unregulated Wild West.

But there are fears that new affordability checks on each BNPL transaction will leave some blocked for the first time, pushing them towards "thrilled" loan sharks instead. "While regulation is clearly needed and welcomed, our recent research found that nearly half of those likely to be rejected have not missed a BNPL payment," said Kate Pender, chief executive of not-for-profit Fair4All Finance, which promotes fair and accessible financial services. "The need for credit doesn't just disappear when you can't access it and people are often pushed towards more expensive or unregulated alternatives.

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"What's changing under new rulesOnly lenders authorised by the Financial Conduct Authority (FCA) will now be able to offer BNPL services, bringing them more in line with credit card providers and banks offering loans. It also means:Customers can now refer new unresolved complaints about BNPL services to the Financial Ombudsman Service (FOS) for independent adjudication. The FOS expects to deal with about 2,000 cases by the end of MarchConsumers can claim for refunds and compensation for faulty goods costing more than £100 from the BNPL provider (known as section 75), as is already the case with items bought on a credit cardShoppers must pass an instant and automatic test that they can repay the loan, otherwise the purchase via BNPL will be blockedBorrowers must get clear upfront information about the loan such as what happens if a payment is missed, and be directed to free debt advice if they are in financial difficulty Regulators say stricter regulation will prevent people from splashing out on something unaffordable in a few clicks, taking on too much debt and being caught out by late payment fees.

But Pender estimated 10% to 30% of BNPL users would fail "conservative" affordability checks, which are designed by each lender. This could leave many unable to buy the essentials they needed. Loan sharks would be "thrilled at the prospect", she told News, with younger people or those who had repayment issues in the past among those more likely to be rejected.

BNPL has proved particularly popular with 18 to 24-year-olds, although it has widespread use among all age groups. 'It didn't feel like debt'Many debt charities have welcomed the changes, which they say have come after years of delay.

Financial markets are tracking the development closely as investors assess the likely impact.