Government announces intention to bring unregulated Buy Now Pay Later loans into Financial Conduct Authority regulation

Economic Secretary agrees with key recommendation from FCA-commissioned report on the unsecured credit market

The government has confirmed its intention to bring unregulated Buy Now Pay Later (BNPL) loans into Financial Conduct Authority (FCA) regulation.

In the FCA-commissioned Woolard review of change and innovation in the unsecured credit market - led by the FCA's former Interim Chief Executive Chris Woolard and published today - an advisory panel of stakeholders from the consumer credit and advice sectors investigated whether more needs to be done to ensure a healthy, sustainable unsecured lending market, in particular taking account of the Covid-19 pandemic and its impact on lending and debt levels.

Key findings include -

• the use of BNPL products nearly quadrupled in 2020 and is now at £2.7 billion, with 5 million people using them since the beginning of the pandemic;
• more than one in ten customers of a major bank using BNPL were already in arrears; and
• as a result of the pandemic, the demand for debt advice is likely to more than double, with an estimated 1.5 million additional people needing some form of debt advice.

The report also highlights that, while the emergence of unregulated BNPL products has provided a meaningful alternative to payday loans and other forms of credit, they also represent a significant potential consumer harm, with evidence that they create high levels of indebtedness without due regard to affordability or impact on vulnerable consumers.

As a result of its findings, the review makes 26 recommendations to the FCA that include -

• bringing BNPL credit products that are currently unregulated within the FCA's regulatory framework as a matter of urgency;
• ensuring that regulation, in general, should focus not just on affordability, but on conduct across the lifetime of the product;
• providing free debt advice services with secure, long-term sources of funding to ensure that advice is available to all those in need; and
• addressing known problems in the personal insolvency sector - including support with Debt Relief Order fees so that those who cannot afford them are not prevented from accessing the debt solution.

Responding to the main BNPL recommendations in an exchange of letters with Mr Woolard prior to the review's publication, the Economic Secretary to the Treasury John Glen outlined that the government agrees with the recommendation to regulate interest-free BNPL agreements and that legislation will be brought forward 'as soon as parliamentary time allows'.

As a result, and confirming the government's plans, Mr Glen said today -

'Buy now pay later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular. By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford - the same protections you’d expect with other loans.'

For more information, see Buy now pay later products to be regulated from gov.uk