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Labour's shadow city minister, Tulip Siddiq, rebuked Chancellor Jeremy Hunt for delaying regulation of the buy now, pay later sector.
Friend said the government's “reluctance” and “continued delay” to introduce regulation had “left millions of consumers vulnerable from bad actors” after Hunt backed away from plans to regulate the sector.
Treasury insiders said that the largest bank, Klarna, and several other companies had warned that they would withdraw from Britain if regulations were “too onerous.” These concerns have caused continued delays since the Treasury Department announced the postponement of implementation of the bill in July 2023.
One of the people familiar with Klarna's discussions said the Swedish company had told the Treasury that its short-term credit products would become “unviable” under the proposed rules, but had not threatened to withdraw from the UK.
Friend said the delay left the BNPL sector in a “state of uncertainty” and said Labor would quickly introduce new rules if it wins the general election expected later this year.
“Labour has a plan to urgently regulate the BNPL so it works for consumers and the sector. It is time for this exhausted Conservative government to stand down so Labor can act and govern in the national interest.
BNPL surged in popularity during the cost of living crisis. Research conducted by the Financial Conduct Authority last year found that frequent users of the products were more likely to experience financial difficulties.
A friend wrote to then City Councilor Andrew Griffiths in November offering Labor's support for passing the legislation, arguing that the issue should not be “party politics”.
She said Labor wants to make BNPL companies carry out so-called “affordability assessments” on customers, and track their credit histories more closely to avoid putting vulnerable consumers into debt.
Friend added that customers should also be provided with clearer information when registering, as the Financial Ombudsman Service deals with complaints about the products.
Klarna, which is preparing for an initial public offering, had raised hopes that it might choose to list in London after establishing a holding company in the United Kingdom late last year. It has not yet decided the location or timing of any listing but is also considering the United States, Germany or Sweden.
Hunt and Rishi Sunak, the prime minister, are working to protect the future of London's faltering stock market, which a number of major companies have shunned in recent years.
Earlier this month, Australia began consultation on regulating BNPLs, while the European Union set the rules in October.
It has been more than three years since the Treasury promised to “act quickly” to regulate the sector after the Financial Conduct Authority (FCA) published a review saying there was an “urgent need” for controls.
One Hunt ally said of the buy now, pay later products: “We recognize that this is an unregulated part of the financial services market. We need to find the best way to regulate without being so stringent that the products are withdrawn from the UK.”
In January, Hunt told ITV's Martin Lewis Money Show that 14 million people were using buy now, pay later products every six months, which he said for many people was a “lifeline”.
The Treasury said: “When used appropriately, a buy now, pay later policy can be a useful, interest-free way for consumers to manage their finances.
“We must ensure that regulation of these products is proportionate to ensure borrowers are protected without unjustifiably restricting access.”
Klarna, which declined to comment, said in November that the sector should be regulated.
Elisheva Kissin is a reporter at Risk Management and Banking Regulation, a service of FT Specialist
