This comes after tech giant Apple announced their plans to launch their own service - which is similar to their competitors’ Klarna, Clearpay, PayPal and others - that allows borrowers to repay their loans in instalments, typically over three months.
John Glen, Economic Secretary to the Treasury said: “Buy-Now Pay-Later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place.
“By holding Buy-Now Pay-Later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”
Under the proposals, lenders must do checks to ensure customers are able to afford the repayments, advertisements for the services must be fair and not misleading. Lenders will also be regulated by the Financial Conduct Authority and borrowers will be able to complain about BNPL to the Financial Ombudsman Service.
The loans are used by more than 15 million people in the UK and face calls for a new set of restrictions by the FCA.
A recent survey by the Citizens Advice appeared to show that many lenders were using credits and other forms of debt to repay the amounts they owed. Of the 2,288 people interviewed, 52 per cent repaid the money from their current accounts, but 23 per cent used a credit card, 9 per cent used their bank overdraft and 7 per cent borrowed from friends and family. In March, they learnt that young people, people in debt and people on Universal Credit were roughly twice as likely to use the services to pay for essentials, like food and toiletries than other demographics.