The FCA has published a report on change and innovation in the unsecured consumer credit market following a Review from its former Interim Chief Executive, Christopher Woolard, setting out a number of recommendations to the FCA, including the need to regulate the ‘buy-now-pay-later’ (BNPL) sector.
According to the Woolard review, the use of BNPL products grew exponentially in 2020 and is now at £2.7 billion, with 5 million people using these products since the beginning of the coronavirus pandemic. These services, offered through major retailers such as Klarna, allow people to split payments without paying interest. Christopher Woolard said that even though the growth of BNPL products gives customers a convenient alternative to more expensive credit, it also creates significant potential for consumer harm. The FCA estimated that one in ten customers of major banks using BNPL services were already in arrears.
Why BNPL sector is outside the scope of the FCA?
Most interest-free, fixed-sum credit arrangements with a term of 12 months or less, and with no more than four payments, are outside of the scope of FCA regulation based on the provisions of Article 60F (2) of the Regulated Activities Order (RAO). As such, customers with such arrangements do not benefit from the protections afforded to regulated credit agreements.
The response to the Woolard Review
The FCA welcomed the Woolard Review report and agreed that it is significantly important to bring BNPL business into regulation to protect customers using these services and make the market sustainable. Charles Randell, Chair at the FCA, stated that ‘unaffordable credit can damage the lives of people who are already struggling to manage everyday expenses’ and, thus, regulation should be consistent to ensure that high standards in consumer credit are maintained regardless of the form of credit.
Charles Randell has written to the Economic Secretary to the Treasury proposing that the FCA works with the Government to design appropriate regulation. Moreover, the FCA executive has been instructed by the Board to include the Woolard Review’s recommendations into its 2021/2022 business planning that will be published in April.
John Glen, Economic Secretary to the Treasury, said: ‘Buy-now-pay-later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular. By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans.’
How can we help:
Complyport has extensive knowledge and experience in the consumer credit sector and considerable experience in assisting firms to obtain their FCA authorisation (Part 4A permission). Our team has a wealth of experience dealing with the regulator and their approach to authorisations, which we will use to advise and guide you throughout each stage of your application and beyond.
Find more information on how to become an FCA authorised financial services firm here.
