We’ve responded to the FCA’s consultation on regulating deferred payment credit, more commonly known as buy now pay later (BNPL).
We welcome proposals to bring BNPL into regulation, which will benefit consumers by requiring lenders to follow the Consumer Duty, conduct affordability assessments and provide key information to their customers. We recognise that many consumers value the access that BNPL currently provides to interest free credit, and so we agree with the FCA’s intent to regulate in a proportionate way.
We support requiring BNPL lenders to conduct creditworthiness assessments, to reduce the prevalence of unaffordable lending and ensure that lenders have a good understanding of their borrowers’ existing credit commitments. Our research on consumer borrowing has found that BNPL is widely used in addition to other forms of formal and informal credit, and that BNPL users who also used other forms of credit were more likely to have incurred late fees.
However, we would like the FCA to provide BNPL lenders with more guidance on its expectations for creditworthiness assessments, particularly for small value transactions, which are common in this market. Without clear guidance, lenders may be risk averse and unnecessarily restrict access to credit to those who can afford to repay.
We also support plans to give consumers access to redress through the Financial Ombudsman Service. In our view, the Ombudsman’s flat case fee is proportionately high for small value loans, and contributes to relatively high unit economics for this sort of lending. The same issue will apply for BNPL lenders and so we would like to see the Ombudsman consult on differentiating case fees by product type, so that costs are more proportionate.
