Klarna: Regulation

Treasury written question – answered on 22nd July 2021.

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Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury

Buy-Now-Pay-Later firms which offer regulated consumer credit agreements must be authorised and regulated by the Financial Conduct Authority (FCA) and comply with FCA rules and the relevant parts of the Consumer Credit Act 1974 for any regulated lending they undertake.

Interest-free Buy-Now-Pay-Later agreements repayable in under twelve months and in twelve or fewer instalments are currently unregulated. Firms offering these agreements do not currently need to comply with the Consumer Credit Act 1974. Firms which solely offer these agreements do not need to be authorised by the FCA.

However, firms offering these products must comply with the rules set out in the UK Advertising Codes, and are also subject to the Consumer Rights Act 2015, concerning the fairness of their contract terms, and the Consumer Protections from Unfair Trading Regulations 2008 in relation to unfair commercial practices. Offending firms can be referred to Trading Standards and OFCOM for further action where necessary. The Advertising Standards Authority also published formal guidance about Buy-Now-Pay-Later on 1 December 2020 setting out its expectations on both providers and retailers when offering these services. It banned harmful Buy-Now-Pay-Later adverts in December 2020 stating that future advertising must not irresponsibly encourage the use of the product, particularly by linking its use with lifting or boosting mood.

On 2 February 2021, the Government announced its intention to bring currently unregulated Buy-Now-Pay-Later agreements into the scope of FCA regulation. The Government intends to publish a consultation on its proposed approach to regulation soon.

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