New regulation governing the use of buy now pay later (BNPL) payments is coming “soon”, City Minister Tulip Siddiq has said as she warned of a “black hole of debt” caused by the technology.

Speaking at the Labour Party Conference in Liverpool, the economic secretary to the Treasury told UKTN she has “started” the regulatory process, in line with Labour’s campaign promise to bring BNPL under stricter rules.

BNPL is a payment product with which consumers can split the cost of a purchase over multiple payments across weeks and months. BNPL providers include Klarna, Clearpay and Zilch – though the latter does not charge interest.

Consumer and regulatory groups have expressed concerns that BNPL payments are effectively unregulated loans and that providers have not properly communicated this or the associated financial risks to users.

Siddiq acknowledged the urgency of bringing regulations into action due to the “horror stories” from customers who “have fallen down this huge spiral of debt because they haven’t read the words and small print”.

The MP for Hampstead and Highgate said there was “a place in the financial services sector” for BNPL but warned that “vulnerable people” are being “taken advantage of”.

Siddiq compared the payment type to the “payday lenders” and “gambling shops” prevalent on Kilburn High Road in her constituency.

“Watch this space. We will be announcing it.”

Siddiq said she has already discussed the issue with BNPL groups and claimed the firms “want to be regulated”.

She said: “I’ve met with them individually, and I’m having a round table with them quite soon as well. I think they recognize that they need to be regulated.”

Klarna and Zilch have already implemented a handful of safety measures in line with proposed regulations, including reporting the use of the product to credit agencies.

Luke Charters, MP and chair of the Fintech All-Party Parliamentary Group, told UKTN he was even “more pessimistic” about the product.

Charters blasted the practice of small ticket BNPL purchases for things like takeaway pizzas and claimed there was a significant “slice of the market” that was simply not suitable for using BNPL.