New rules to be introduced protecting UK ‘buy-now, pay-later’ product consumers

The proposed rules aim to bring BNPL companies under Financial Conduct Authority (FCA) supervision and apply the Consumer Credit Act (CCA), ensuring consumers have access to protections that are not currently available to them when purchasing BNPL products.  Regulation of BNPL was proposed under the previous government but was not able to be completed prior to dissolution of parliament for the general election.  The new consultation (57-page / 381KB PDF) builds on the work previously done and updates the previous proposals in some key respects.

Under the proposed legislation, parts of the CCA regime which would otherwise be applied to BNPL firms entering into regulated agreements will be disapplied and the FCA will instead make rules to cover those aspects of the CCA. This includes pre-contract information, statements and required notices during the lifetime of the agreement.  The application of the regime will also be extended as the “small agreements exemption” under which credit agreements for less than £50 are excluded from the CCA will be disapplied for BNPL arrangements.

One of the consequences of these proposals is that the CCA sanction that currently ensures an agreement is unenforceable by the lender if they breach CCA provisions may no longer apply to regulated BNPL products in all circumstances. However, this should not be seen as a significant lessening of protections as FCA supervision and powers under the Financial Services and Markets Act 2000 will continue to apply. The FCA has a wide range of tools at its disposal including requiring firms to pay redress where it considers this is required.

In addition, the new regime will only cover third-party lenders - merchants who provide credit for their own products will not fall within the new rules. Merchants will also not require authorisation for credit broking unless they are doing ‘in-home’ sales. There will be exemptions, however, for premium finance, employer-employee agreements and agreements with regulated social landlords.

Venetia Jackson, a financial services regulation expert at Pinsent Masons, said: “Whilst lenders will need to wait until the FCA consults on its rules for BNPL, the scope for greater flexibility through disapplication of a number of the prescriptive information requirements in the CCA offers a real opportunity to build a regime adapted to how consumers take out credit products today.”

“Merchants will welcome the confirmation that there is no intention to require them all to seek credit broking permissions. However, care will need to be taken around the financial promotions regime - especially where a merchant wants to devise its own promotion and will need an approver before it can be issued.”

“The approver regime is still new and it remains to be seen how many approvers will be available to give merchants this flexibility rather than being limited to issuing the promotions created by the authorised BNPL provider.”

The government has highlighted the urgency of introducing the new regime, stating that the proposed legislation will be introduced to parliament as soon as possible following a six-week consultation period.

There is expected to be a 12-month period between the proposed legislation being passed and the new regime taking effect. During this time, firms offering BNPL products will enter a temporary permissions regime while they apply for authorisation.

The government has also stated it remains committed to wider reform of the CCA.