HM Treasury Publishes Draft Legislation for Buy-Now Pay-Later Lending
HM Treasury has published its consultation and draft legislation targeted at Buy-Now Pay-Later (“BNPL”) lenders which would introduce a suite of new rules.
The Global Financial Regulatory Blog has a helpful explainer discussing the proposed new rules and changes. This includes…
On the narrowed scope of the proposal:
The government announced in the February consultation that it has altered its stance on the scope of the regime and will only seek to capture BNPL agreements where a third party lender is involved, rather than also regulating short-term loans provided directly by merchants online or at a distance (e.g., over the phone) as had previously been proposed. This development reflects the government’s aim to ensure that lending which presents a substantive risk of consumer detriment is prioritised in its proportionate approach to the regulation of BNPL lending.
On the anti-avoidance measures taken:
The draft legislation also provides for an anti-avoidance mechanism to prevent merchants pre-agreeing to sell goods or services to a lender, such that at the point the consumer enters into their credit agreement, the lender owns the goods and thus is not a “third-party” in the transaction.
On some of the confirmed aspects of prior consultations:
Amending the financial promotions regime so that promotions provided by unauthorised merchants offering BNPL agreements through authorised third-party lenders must be approved by an authorised person.
Disapplying the pre-contractual disclosure requirements under the Consumer Credit Act 1974 (CCA) that would otherwise apply to BNPL agreements once they become regulated, and instead implementing FCA rules covering this area to allow for more flexibility and proportionality (to be consulted on separately).
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Tailoring the current FCA rules on affordability to ensure a proportionate approach to creditworthiness assessments for regulated BNPL agreements.
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Retaining current trigger points for post-contractual information for customers in arrears or default – however there may be more to come on this as part of the wider upcoming CCA reforms expected in this area.
Retaining Section 75 CCA on lender liability under a debtor-creditor-supplier arrangements in its current form.
Giving consumers access to the Financial Ombudsman Service (FOS) in relation to regulated BNPL agreements and issues concerning the conduct of lenders.
On timing for any changes:
The February consultation closes on 11 April 2023, after which the government will consider stakeholder responses. A separate FCA consultation on proposed FCA rules for newly regulated BNPL agreements is expected to be published shortly after the government’s response to the consultation
