UK Government launches consultation on BNPL regulation

The UK Government has launched a consultation on the future regulation of the ‘buy now, pay later’ (BNPL) sector, which it has said will take a “proportionate approach”.

The consultation follows the Government’s announcement in February 2021 that it sought to bring unregulated interest-free BNPL products into regulation, given the potential risk of consumer detriment, as highlighted by ‘The Woolard Review: A review of change and innovation in the unsecured credit market’.

Interested parties or stakeholders have been invited by HM Treasury to make representations on the scope and form of BNPL regulation up until the consultation closes on 6 January 2022.

HM Treasury has said the consultation will consider the “potential scope” of regulation, with the aim that it will target those products where consumer detriment could arise.

The BNPL consultation, which was published yesterday (21 October), is also asking for views on a range of regulatory controls that could be put in place for the market.

The Woolard Review identified a number of areas where there is potential for harm to consumers as the BNPL market continues to grow, including promotion to consumers, poor consumer understanding of the product, lack of affordability assessments and inconsistent treatment of customers in financial difficulty.

It concluded that BNPL should be brought within the scope of the Financial Conduct Authority’s (FCA) regulation.

In its consultation document, the Government stated that it was consulting stakeholders to ensure “a balanced and proportionate approach is taken” to the regulation of BNPL products, “recognising that their interest-free nature is inherently lower risk than interest-bearing products, and that this type of credit provides a valuable mechanism to spread payments for many consumers”.

The value of transactions using BNPL from the main providers more than tripled in 2020, according to The Woolard Review.

It also found that 11% of consumers, or around 5 million individuals, said they had used a BNPL product since the start of the Covid-19 pandemic.

The review also revealed that among the firms surveyed by the FCA, the total value of BNPL transactions between January to December 2020 was £2.7bn.

Responses to the BNPL consultation should be sent to buynowpaylater@hmtreasury.gov.uk and will be shared with the FCA unless otherwise requested.