Buy now, pay later firms facing action despite MPs rejecting regulation proposal
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Buy now, pay later firms are facing action from ministers despite the Government voting against proposals to introduce regulations within months.
Treasury minister John Glen said he “stands ready to take swift and proportionate action” against the lenders, such as Klarna and Clearpay.
But Mr Glen added this will only take place once a review of unsecured credit market regulation is published.
This is being led by Christopher Woolard, a former Financial Conduct Authority (FCA) board member, and MPs heard his findings are expected to be released “very shortly”.
Mr Glen’s commitment came in response to Labour MP Stella Creasy tabling a cross-party amendment to introduce regulations for buy now, pay later firms within three months of the Financial Services Bill becoming law.
I am very aware of the potential risks here - particularly in relation to consumers taking on unsustainable levels of debt
But MPs rejected this proposal by 355 votes to 265 – majority 90.
Speaking during the report stage of the Bill, Mr Glen said: “These products can play an important role by providing a lower-cost alternative for people making purchases, especially larger items.
“As an interest-free credit product, buy now, pay later is inherently lower risk than other forms of borrowing and can be a useful part of the toolkit for managing personal finances and tackling financial exclusion.
“However, I am very aware of the potential risks here – particularly in relation to consumers taking on unsustainable levels of debt.
“A delayed payment on an occasional basis for someone who has the means to make those repayments is different to accumulating unsustainable levels of debt, which then cause that individual to seek additional financing from high-cost lending.
“It’s the conflation of those two activities which I recognise is the motivation behind this (amendment).”
When it comes to credit if the deal is too good to be true, it probably is
Mr Glen highlighted the ongoing review, adding: “Mr Woolard is due to publish his findings very shortly and I stand ready to take swift and proportionate action following the conclusion of the review, reflecting very carefully on what he says and I’ve worked very closely with him over the last three years – and I will stand ready to address his report and engage with the industry and interested parties.”
Ms Creasy, MP for Walthamstow, warned one in four consumers used buy now, pay later credit to pay for their shopping at 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 that these forms of credit have been used 35% more during the pandemic as everybody shops online.”
Ms Creasy added: “Ministers say let’s wait for the FCA, they’re ready to take swift and proportionate action.
“Well that is exactly what NC7 does, it ensures that whatever comes out of that review, it will get the parliamentary time to be put into practice within three months of this Bill becoming law.
“If we leave it longer, waiting and waiting as we did with the payday lenders, then it is our constituents who will suffer… So much of the history of credit regulation in this country has been one of delay and dither and debt as a result for our constituents.
“Constituents now living through a time when millions are furloughed and many more are facing redundancy, so their income is going to get lower not higher.”
Mr Glen also moved amendments that the Government hopes will make it easier for law enforcement to freeze and confiscate proceeds of crime and terrorist property held in electronic money accounts.
The changes reform the scope of account-freezing and forfeiture powers in existing law to include payment and e-money institutions.
Mr Glen told MPs: “This will ensure that law enforcement are able to quickly and effectively freeze and forfeit the proceeds of crime and terrorist property when held in payment and e-money institution accounts.”
The Bill amends existing laws in 17 areas, including on banking rules and benchmarks.
It also includes changes to help people struggling with problem debt and an extension of the maximum criminal sentence for market abuse from seven years imprisonment to 10 years.
For Labour, shadow Treasury minister Pat McFadden described the legislation as a “mixed bag of measures”.
The Bill received an unopposed third reading to clear all stages in the Commons and will undergo further scrutiny in the House of Lords at a later date.
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