New Buy Now Pay Later affordability rules block unprepared shoppers

Shoppers face potential rejections at checkout under newly enforced regulations for Buy Now Pay Later services, the BBC reported. Under the rules implemented in July, financial providers now conduct stricter background checks on a customer's ability to repay before approving a loan. Consumers who fail these affordability tests will have their purchases blocked by lenders. [1][2]

The regulation requires Buy Now Pay Later firms, including Klarna and Clearpay, to hold official regulator approval to operate, according to the BBC. The updated rules provide shoppers with expanded access to refunds as well as independent rulings on complaints when issues arise with a lender. [1]

Buy Now Pay Later is a form of short term debt financing where consumers pay an initial portion of a purchase price and postpone the remaining balance. Financiers pay merchants directly at the time of sale, and consumers repay the debt over time in equal installments. [3]

Financial providers traditionally structured these products like installment plans or hire purchase agreements involving the consumer, merchant, and lender. The specific number of payment installments and the full duration of repayment periods vary depending on the financial institution involved. [3]