We welcome the government's consultation[1] on the regulation of currently-exempt buy now pay later (BNPL) products. We have long called for these products to be brought into our remit. In 2021, the FCA board backed the Woolard Review[2] recommendation that BNPL be brought into regulation.
BNPL can provide benefits for consumers by giving them more payment options and support merchants in selling their goods and services. But as with other credit products, there are also risks and the potential for harm.
Making new rules
We will consult shortly after legislation is finalised on our regulatory regime for BNPL. This will include our proposed rules and approach to authorising firms. We want to ensure those who find BNPL helpful can still benefit from it, firms can innovate and grow, and consumers are appropriately protected.
We’ll consider feedback before we finalise our rules and undertake a cost-benefit analysis to ensure that our approach is proportionate and delivers against our statutory objectives. Firms will then be given a short period to prepare for our rules before they come into effect. We expect to take on regulation of the sector 12 months after legislation is made.
Our regulation of BNPL aims to ensure good outcomes for borrowers and alignment with rules already in place for other credit providers. This will include, for example, the need to provide clear and sufficient information so people can decide whether a product is right for them, and a requirement to undertake affordability and creditworthiness checks before money is lent. Firms will also be subject to the Consumer Duty. Borrowers will receive the benefit of other protections, including the right to take any complaints to the Financial Ombudsman Service.
Authorising firms
Once legislation and our rules are finalised, BNPL firms not currently authorised to lend to consumers will need to apply. Merchants offering goods or services in a person’s home and who offer agreements from third-party lenders will need to apply to become authorised for credit broking. We’ll assess all applications and seek additional information from firms where needed, to decide if they can be authorised. We will soon begin engaging with firms we expect will need to become authorised.
We intend to put in place a temporary permissions regime (TPR), which will allow firms that need to be authorised to continue with their BNPL activities until their application for full authorisation has been processed. Firms operating in the TPR will need to comply with our rules and we will be able to take action against them.
Despite not yet having regulatory oversight of these firms, we’ve already secured changes to unfair contract terms[3] and warned firms about misleading advertising[4].