By Victoria McCarron

On 14th February, the government released its much-anticipated consultation paper and draft legislation outlining its proposals to regulate Buy-Now Pay-Later (BNPL) products. BNPL has been under scrutiny for some time following the publication of the Woolard Review in February 2021, recommending urgent regulation of BNPL.

The consultation paper builds on previous proposals for a BNPL regulatory regime contained in Treasury’s consultation response in June 2022. Key points arising out of the consultation include:

• proposals to amend the Article 60F exemption that currently applies to BNPL products such that it only applies to merchants offering credit on their own products and services, thus causing agreements offered by third-party lenders to become regulated and the third-party lenders to require authorisation (unless they fall within a specific exemption);
• confirming that merchants introducing customers to the newly regulated agreements will be exempt from credit broking regulation;
• extending the financial promotions regime to unauthorised merchants offering BNPL as a payment option. In practice, the government expects that this would involve third-party lender partners providing pre-approved materials to merchants as part of their overarching commercial arrangements, rather than having all individual financial promotions approved;
• a ‘principle of proportionality’, in which the government intends to balance sufficient consumer protection with the need to avoid limiting the availability and cost of financial products. On this point, the government noted some provisions in the Consumer Credit Act will need to be dis-applied. The government’s view is that an FCA rules-based regime for pre-contractual disclosure would be more proportionate to the level of risk;
• dis-application of the Financial Services (Distance Marketing) Regulations for unauthorised brokers where information is disclosed by authorised lenders in accordance with the FCA's rules on distance marketing for authorised persons;
• the FCA’s intention to publish a consultation on its proposed rules outlining agreements that the legislation will bring into regulation. Until the regulatory regime is fully implemented, the government has proposed for a temporary permissions regime (TPR) to allow firms offering BNPL products to continue to operate until they are fully authorised; and
• that existing elements of the consumer credit regulatory regime will apply to agreements that fall under the new regulations. The government has clarified some elements from the CCA framework will automatically apply and others from FCA rules or standard industry practices. In particular, Section 75 of the CCA will apply to protect consumers on purchases made using BNPL products.

The consultation closed on 11 April 2023 and feedback is being assessed. 

Legislation is intended to be introduced during the course of this year.