The use of buy now, pay later (BNPL) loans as a means for consumers to manage daily expenses has grown significantly. However, concerns persist regarding the transparency of these installment loans and their potential misuse.

UK Regulations for BNPL Providers

To address these issues, the United Kingdom is implementing regulations that will oversee BNPL providers through the Financial Conduct Authority (FCA). These new rules include four key components:

• Full Transparency: Customers must be fully informed about their loan terms, including due dates, interest rates, and late fees.




• Affordability Checks: Lenders are required to perform affordability checks to ensure borrowers can manage repayments without overextending themselves.




• Support for Hardship: If a customer faces financial difficulties, lenders must offer support and guidance on debt management.




• Complaint Escalation: Consumers have the right to escalate complaints to the UK’s Financial Ombudsman Service.

The aim is to create an environment where BNPL providers can operate sustainably while protecting consumers. One major concern is that the rapid expansion of installment lending may contribute to a significant increase in “phantom debt.”

Many unregulated BNPL providers did not report their lending data to credit bureaus, making it difficult to assess whether financially strained customers are taking on unsustainable levels of debt.

BNPL Users and Phantom Debt

To address this issue, some BNPL companies began voluntarily reporting to credit bureaus. However, others declined, citing the fluid nature of BNPL loans as a reason why such data might not be accurately captured in traditional credit reports.

Data from LendingTree indicates that 41% of respondents reported making late payments using BNPL services last year, up from 34% the previous year. The survey also revealed an increase in consumers using BNPL for everyday purchases, suggesting ongoing financial stress among users.

These trends highlight the growing reliance on BNPL to bridge gaps in credit access. Consequently, concerns about phantom debt and calls for stricter regulation are likely to continue as more consumers turn to this alternative form of borrowing.