Buy now, pay later Companies facing action despite MPs rejecting proposed regulation

Buy now, pay later firms are facing action from ministers despite the government voting against proposals to introduce the regulations within months.

Treasury Secretary John Glen said he “stands ready to take swift and proportionate action” against lenders such as Klarna and Clearpay.

However, Glen added that this would only happen once a review of the regulation of the unsecured lending market is published.

The case is being led by Christopher Woolard, a former executive at the Financial Conduct Authority (FCA), and MPs were told his findings were due to be published “soon”.

Glen’s pledge comes in response to Labor MP Stella Creasy tabling a cross-party amendment introducing buy now, pay later regulations for businesses within three months of the Financial Services Bill coming into force.

But parliamentarians rejected the proposal by a majority of 355 to 265 – a majority of 90.

Speaking at the reporting stage of the Bill, Mr Glen said: “These products can play an important role by providing a cheaper alternative for people shopping, especially for larger items.

“As an interest-free, buy now, pay later lending product, it is inherently lower risk than other forms of lending and can be a useful part of your toolkit for managing your personal finances and combating financial exclusion.

“However, I recognize the potential risks involved – particularly for consumers who are taking on unsustainable levels of debt.

“An occasional late repayment for a person who has the means to make these repayments is different from accumulating unsustainable levels of debt which then causes the person to seek additional financing in the form of high-cost loans.

“It’s the combination of those two actions that I think is the motivation for (the amendment).”

Glen highlighted the ongoing review, adding: “Mr Woolard is due to publish his findings shortly and I am ready to take swift and proportionate action once the review is complete, thinking very carefully about what he says and I have worked very hard and worked closely with him over the last three years – and I will be ready to engage with his report and engage with industry and stakeholders.”

Ms Creasy, MP for Walthamstow, warned that one in four consumers are using the ‘buy now, pay later’ option for their Christmas shopping in the run-up to Christmas.

She said: “When it comes to credit, if the deal is too good to be true, it probably is.

“Compare The Market research shows these forms of credit have been used 35% more during the pandemic as everyone shops online.”

Ms Creasy added: “Ministers are saying let’s wait for the FCA, it is ready to take swift and proportionate action.

“Well, that’s what NC7 does. It ensures that whatever comes out of this review will be given parliamentary time to implement within three months of this bill coming into force.

“If we leave it too long, waiting and waiting, as we have done with payday lenders, our constituents will suffer… Much of the history of credit regulation in this country has been delays and hesitations and, as a result, debt for our constituents.

“Voters now live in a time when millions of people are furloughed and many more are at risk of being laid off, so their incomes will fall, not rise.”

Glen also introduced amendments that the government hopes will make it easier for law enforcement to freeze and confiscate criminal proceeds and terrorist assets held in electronic money accounts.

The changes reform the scope of account blocking and forfeiture powers in existing law to include payment and electronic money institutions.

Glen told MPs: “This will provide law enforcement with the ability to quickly and effectively freeze and confiscate criminal proceeds and terrorist assets held in payment institution and electronic money accounts.”

The bill amends existing regulations in 17 areas, including banking principles and indicators.

It also includes changes to help people struggling with debt problems and an extension of the maximum penalty for market abuse from seven to 10 years.

On behalf of the Labor Party, Shadow Chancellor of the Exchequer Pat McFadden described the legislation as a “mixed set of measures”.

The bill passed third reading unopposed to clear all stages in the House of Commons and will undergo further scrutiny in the House of Lords at a later date.