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Lenders offering Buy-Now Pay-Later (BNPL) and related products to be FCA regulated

June 20, 2022

What has happened?

In June 2022, HM Treasury announced that lenders offering Buy-Now Pay-Later (BNPL) products, which are currently exempt from regulation, will in future need to be authorised by the FCA and that borrowers will have access to the Financial Ombudsman Service.

In addition, lenders will be required to carry out affordability checks and apply appropriate treatment to customers in financial difficulty, and will be subject to the FCA’s financial promotion rules to ensure BNPL promotions are fair, clear, and not misleading.

What are the key points?

Today’s consultation response (which is available here) sets out the Government’s proposals for regulation of the sector. Given its complexity, the Government will publish a consultation on draft legislation toward the end of this year. Following this, it aims to lay secondary legislation by mid-2023, after which the FCA will consult on its proposed rules for the sector.

The Government has also confirmed that other forms of short-term interest-free credit (STIFC), such as those used to pay for dental work or larger items such as furniture, and which are increasingly offered on-line, will be required to comply with the same rules, given that the risks posed are similar and consumers should receive consistent protections from similar products. These rules will apply to firms that partner with a third-party lender to provide credit, and the Government is asking for further stakeholder feedback to confirm whether they should also apply to online merchants who directly offer credit for the purchase of their own products.

The Government will allow exemptions for specific agreements where there is limited risk of potential consumer detriment, and where regulation would otherwise adversely impact day-to-day business activities. Areas expected to remain exempt include invoicing, agreements financing insurance policies, charge cards, trade credit and employer lending to employees.

The Government’s approach to regulatory controls for agreements that will be brought into regulation will tailor the application of the Consumer Credit Act 1974 to these products and the elements of lending practice most linked to potential consumer detriment. BNPL users already benefit from consumer protection regulation, which includes agreements being subject to:

  • rules and guidance on advertising,
  •  the Consumer Rights Act 2015 concerning the fairness of contract terms, and
  • the Consumer Protection from Unfair Trading Regulations 2008 in relation to unfair commercial practices.

Ahead of regulation, the Government is aware that lenders that offer agreements that will be brought into regulation are preparing and adapting their business models in anticipation. In addition, the ASA has continued to make rulings on specific BNPL adverts. BNPL lenders have also commenced sharing data on agreements with credit reference agencies. Finally, the FCA has already taken steps under broader consumer protection legislation to mitigate the risks of potential consumer detriment from the use of BNPL.

As a result, four BNPL firms have agreed to change terms in their consumer contracts to make them fairer and easier for consumers to understand and to better reflect how they use them in practice. The FCA will continue to monitor the market and assess whether there are further interventions that it could make under its existing powers.

How can we help you?

If you’d like to know more about how we can help you with your BNPL or consumer credit arrangements, or any other regulatory compliance issues, our specialist team is here to help.

Contact us today on 0207 436 0630 – or email