Features | 09/02/22

The Treasury’s consultation on Buy-Now Pay-Later (BNPL) has recently closed. This consultation sought opinions about the Treasury’s plans to bring the product into regulation, following the findings from the Woolard Review, which highlighted the risk of consumer detriment.

It included different policy options on how best to achieve ‘a proportionate approach to regulation of BNPL’. While the Treasury considers the responses it has received, it is interesting to see the views across different parties as they share their submissions.

The CCTA has responded, but we can now see what other trade associations and consumer groups like StepChange and Money Advice Trust have said on the matter.

Unsurprisingly, some views differ across the wider credit industry and consumer groups, but there were also areas of agreement which throw up bigger questions about the future of consumer credit regulation.

Firstly, it is worth noting the speed at which the use of BNPL has grown. Last month it was reported that 42% of 16–24-year-olds had used it in the last twelve months. Very quickly it has become an accepted method of payment.

The rapid growth demonstrates the need for the Financial Conduct Authority (FCA) to be able to act more quickly. It takes too long for the regulator to be able to step in and act on new and emerging products.

Over a year ago the Woolard Review found consumer detriment, but we are still at the stage of considering responses to the proposals for how to regulate the product. There can be no doubt that a proportion of the lending to BNPL (and salary finance schemes) has replaced loans that would otherwise have been made by FCA-regulated lenders in both the mainstream and non-standard consumer finance sectors.

Many agree that the government and the FCA should be able to act more quickly to address new products, but also to not delay the introduction of new rules.

The Money Advice Trust were one of these organisations, saying they were “concerned that there could be a substantial delay before the new regulations are put in place. The government and the FCA should act to put the protections proposed in this consultation in place as soon as possible, to reduce harm to vulnerable groups”.

The treasury has also suggested that some areas of the consumer credit act no longer seem to make sense, so shouldn’t be applied to BNPL. In particular, the consultation refers to section 55 of the Consumer Credit Act (which deals with the disclosure of information) as being inflexible.

This is true but, if it is the Government’s view, the approach should be to review and amend the requirements of that section for all consumer credit products. Such a review could help ensure the requirements for pre-contractual information in all cases, better reflect the product and meet the needs of consumers. StepChange were also supportive of this idea, commenting that:

“BNPL exemplifies the reasons the CCA communications framework is in need of updating for the modern, digital credit market; ideally the framework itself would be updated, and made more flexible where appropriate … we would welcome an update on the … recent FCA review of the CCA retained provisions”.

There are many aspects of the Consumer Credit Act that no longer seem useful to modern day credit. There is also a suggestion that due to the digital nature of the product, a lighter touch regulation may be appropriate. However, the online nature of a product does not necessitate a different or lighter-touch regulatory approach.

Lenders have made digital products work for customers and firms under the current regulatory regime and the same should be applied to new products. There are many credit products only available online, and it needs to be clear to consumers what they are getting into and that they are protected, should something go wrong.

These examples demonstrate why we feel there needs to be a comprehensive review of consumer credit regulation. Some aspects of the current regulatory structure no longer work or make sense. This would also ensure more flexibility so that new and emerging products can be regulated appropriately.

This is an innovative sector, but consumer protection should not suffer due to an outdated regulatory framework.

• HM Treasury wants a proportionate regulatory regime for BNPL. However, BNPL is often used as a substitute for other credit products. It is important that there is consistent regulation – and consumer protection – for substitutable products.

• If the provisions of the Consumer Credit Act are not fit-for-purpose for one credit product, it is not fit-for- purpose for any credit product.

• The customer journey for any credit product needs to be structured in a way that ensures consumers have all the information they require, presented in a clear way, and opportunity to exit the process if they decide it is not the right product for them.

• Comprehensive reporting of credit usage and repayment is vital to protect customers and lenders.

• Affordability checks must be required for BNPL in the same way as these checks are required for other credit products. No interest does not necessarily mean lower risk. A BNPL loan can be unaffordable, even if no interest is payable.