The Retailer Winter Edition 2022
WI NT ER 202 2
Buy-Now Pay-Later: Proposals for Distinction
Treatment of consumers in financial difficulty
Small Agreement Currently, small agreements (under £50) do not qualify for the protections provided by the CCA. The scope of section 17 of the CCA could be narrowed, so that CCA requirements apply to BNPL agreements under £50.
Credit broking regulation A retailer that brokers BNPL credit would not be subject to regulation as a credit broker. Financial promotion BNPL agreements would fall within the financial promotions regime. Retailers subject to content rules. BNPL Providers would be required to obtain approval for promotions of BNPL agreements from an FCA authorised person.
Improper execution Introduce CCA’s requirements for proper execution into the BNPL regulatory framework. Provide customers with greater opportunity to consider whether credit agreements meet their needs. Implement requirements for clear and consistent credit reporting by BNPL providers. Introduce FCA requirements around how firms treat customers in financial difficulty. Introduce requirements on how firms should communicate with borrowers that have missed payments, such as notices or notice periods for BNPL. Creditworthiness assessment FCA’s current rules on creditworthiness assessments will be applied to BNPL agreements, subject to FCA consideration of proportionality.
BNPL: CUSTOMER LIFEYCLE RULES
Pre-contractual information BNPL-specific FCA rules would apply.
Form of credit agreement Develop bespoke legislation appropriate to the characteristics of BNPL, e.g. risks and the way it is used.
Section 75 of Consumer Credit Act Statutory protection for buyers could apply, e.g. creditors being held jointly and severally liable for suppliers’ breach of contract or misrepresentation.
3. Controls: Risk proportionality The Consultation recognises that the risks of BNPL agreements are “inherently lower than an interest-bearing credit product” and that over-reg ulation can limit consumer choice and innovation. It suggests that: • BNPL regulation is proportionate to the level of risk that they present and is not burdensome; • Consumers are adequately and fairly protected from detriment and can access dispute resolution; • Regulation for BNPL does not adversely impact competition and innovation; and • Small and Medium Enterprises (“SMEs”) are not disadvantaged over larger retailers. To protect consumers from potential risk it proposes that: • Financial services rules may govern marketing content; • Mandatory pre-contractual information may need be provided to consumers; • The form and content of BNPL agreements would be dictated by law; • The FCA’s current rules on creditworthiness assessments may apply to BNPL agreements; and • Requirements around how BNPL firms treat customers in finan cial difficulty may be introduced. A potentially significant (and costly) development is the prospect of increased costs relating to dispute resolution. The Consultation proposes that BNPL-related customer complaints can be referred to the Financial Ombudsman Service (“FOS”). Currently the FOS charges each respondent £750 per complaint (from the 26th complaint submitted onwards). This greatly exceeds the acknowledged average value of a BNPL transaction, which can range from £50 to £75. Firms may want to consider offering in consultation feedback a more balanced and standardised customer complaint dispute mechanism process. 4. Key Points for BNPL Providers The Consultation recognises that BNPL agreements can benefit consumers.
5. Key Points for Retailers Earlier discussions had raised the prospect that retailers offering third party BNPLwould need to consider FCA authorisation as a credit broker (introducer). The Consultation proposes that this should not be necessary. The Government may require merchants to improve their notifications and advertising to ensure consumers are aware that they are using a BNPL product and provider. 6. Next Steps While the Government considers BNPL agreements as potential source of consumer detriment, the Consultation shows that “there is relatively limited evidence of widespread consumer detriment materialising at this stage”. It suggests that BNPL regulation is “proportionate” but not “so burdensome that it inhibits the product being offered, or reduces consumer choice”. The Consultation suggests that a bespoke approach to the requirements governing how BNPL is offered would be more appropriate than impos ing the CCA provisions in their entirety. This would relate to agreement structure and content and also the customer journey, from marketing and customer approval for a facility to management of customer arrears. These changes need ongoing monitoring by businesses. The precise content of regulatory requirements and scope of changes is not yet clear. The Consultation will be followed by proposals and steps for regulation. An FCA consultation on relevant rules would follow although no time table has been specified.
Sophie Lessar Sophie.firstname.lastname@example.org
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