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As the financial services sector has developed and adopted technology, there has been a significant growth in Deferred Payment Credit, more commonly referred to as ‘Buy Now, Pay Later’ (“BNPL”) by consumers. Demonstrating the scale of growth, news outlets have recently reported that over £10 billion has been lent to consumers by BNPL companies in the last three years. Currently, these products fall outside of regulation by the Consumer Credit Act 1974 (“CCA”) and therefore the firms offering them are not required to be authorised and regulated by the Financial Conduct Authority (“FCA”).

Consumers often misunderstand the product for a ‘money management tool’ rather than a technical form of credit and therefore fail to anticipate its risks. The Woolard Review (2021) further highlighted the product’s risks and the need for the FCA to step in to regulate the dynamic sector and prevent further consumer harm.

The FCA actively welcomed the launch of the Treasury’s new consultation earlier this year to bring BNPL into the realm of their supervision. The draft legislation aimed to gain stakeholders’ views on whether it effectively delivered the government’s policy positions.

Fast-forward to July and the sector is bustling with the news that the proposals to regulate may be scrapped as a whole. News outlets have reported that Treasury officials are concerned that introducing ‘heavy handed’ regulation could mean some of the bigger players could leave the UK market (although this seems unlikely, noting that Klarna, one of the biggest players, recently expressed support for BNPL regulation). This would cause particular concern as the country very much remains in a cost-of-living crisis and options to pay for products in instalments is appreciated and is more favourable than high-cost-short-term credit.

Instead of scrapping the proposals altogether, there is a chance that they could be dealt with in the CCA reform. Industry experts are however concerned a ‘simple copy and paste’ of the CCA’s rules would not be suitable for this market and are urging the government to ‘be bold’ in creating new rules that better inform consumers.

Andrew Griffith, the City minister is still considering options following the recent consultation and so this area is still a space to watch.

 

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