Many will be vulnerable to ‘loan sharks’ without regulations, Labour MP says

Many will be left vulnerable to “legal loan sharks” if the Government does not bring forward its plans to regulate the “buy now, pay later” sector sooner, a Labour MP said.

In Chancellor Rachel Reeves’ first Mansion House speech, she pledged to rip up financial red tape, arguing that regulatory changes following the 2008 economic crash have “gone too far”.

The Treasury is currently consulting on draft legislation which would allow the Financial Conduct Authority (FCA) to fully regulate “buy now, pay later” firms.

Stella Creasy criticised the Government’s plan to implement the regulations in 2026, claiming they should be put in place sooner.

In the Commons on Monday, the Walthamstow MP said: “One of the areas of financial regulation I know members from across the House have been long calling for is the ‘buy now, pay later’ companies.

“Because of the delay in regulating these companies, a third of people seeking debt advice do so because of ‘buy now, pay later’ companies.”

She added: “I welcome the Government’s commitment to regulate them, but I’m as bemused, as many people are, as to why it will take until 2026 for the regulations to take effect and for our constituents to be protected.

“So can the minister give me an assurance as to why, when everybody knows this regulation needs to happen, everybody knows what those regulations are, the Financial Conduct Authority have been waiting since 2021 to do it?

“Why are we giving these legal loan sharks two Christmases worth of presents to exploit our vulnerable constituents in this cost-of-living crisis?”

Treasury minister Tulip Siddiq replied: “There is need for ‘buy now, pay later’ during a cost-of-living crisis, and people are going to access their products.

“But what I’ve done is bring it under FCA controls so far and regulate it to make that it’s safer and that people don’t store up a huge amount of debt that they can’t pay.

“The consultation is open until the 29 of November, and I would urge her to urge other people to feed into it, so we can get this policy right. Because it wasn’t done by the previous government.

“And I will bring forward legislation as quickly as possible, but I did think it was important to bring in the consultation and hear what people have to say because we do want to regulate it properly and we have to hear what the sector have to say.

“I do understand that she’s being very patient, and I ask her to more patient, but our intention is to make this sector as well-regulated as possible under the FCA.”

Earlier in the statement on the Chancellor’s Mansion House speech, Reform UK MP Rupert Lowe argued that the FCA should be “disbanded”.

He said: “Given that regulators cannot regulate for growth, the only solution is to disband the FCA and PRA (Prudential Regulation Authority), and return to the light touch of regulation under the Bank of England.”

The Great Yarmouth MP added that the Government’s plan to “regulate for growth” is an “oxymoron”.

Ms Siddiq said “our regulators do a very good job, but we will be holding them to account”, adding: “I wouldn’t say getting rid of the regulators is the way to grow the economy.”

During her speech last week, Ms Reeves also told City chiefs she plans to create pension “megafunds” that will “power growth” in the economy and reward British savers.

The reforms will be introduced through a new Pension Schemes Bill next year, consolidating defined contribution (DC) schemes and pooling assets from 86 local government pension scheme authorities.

Conservative shadow Treasury minister Mark Garnier warned the Government not to use pensions as a “cash cow”, ploughing them into infrastructure without creating the “best deal” for savers.

He said: “These reforms must remain focused on delivering the best deal for pension savers and whilst additional investment is welcome, the pension market should not be treated as a Government cash cow for public investment if it loses sight of the paramount objective to deliver a secure return for savers.

“It is true that unlocking greater investment and delivering greater returns for pension savers can come together, both can be true at the same time, but as I’ve said without the publication of the finer details of this policy, I must push for more detail.”

Ms Siddiq had earlier said “whilst it was right that successive governments made regulatory changes after the global financial crisis to ensure that regulation kept pace with the global economy of the time”, the system “sought to eliminate risk-taking” and had “cost to firms when they’re spending large sums on compliance and they are not using that money to innovate and to grow”.