Firms such as Klarna and Clearpay are now facing stricter controls from the Financial Conduct Authority (FCA), who will now be responsible for regulating the sector. That means more checks on the customer when they choose to use these services.
Buy now, pay later services allow you to buy your product immediately, typically clothing, but spread the cost over the following months.
Because they don’t charge interest to the customer they previously haven’t been regulated. However a new report found they were used by 5 million people in the UK, totalling £2.7bn in sales. And 1 in 10 had debt elsewhere.
The Woolard Review found:
John Glen, the Economic Secretary to the Treasury said: "By stepping in and regulating, we're making sure people are treated fairly and only offered agreements they can afford - the same protections you'd expect with other loans."
The government said it will introduce legislation as soon as possible.