Following the recent recommendation of the Woolard Review that exempt interest-free buy-now-pay-later (BNPL) lending should be regulated, the Government has now published an amendment to the Financial Services Bill which indicates how it will seek to do this.
The Government's approach
BNPL credit agreements are currently exempt under articles 60F(2) and (3) of the Financial Services and Markets Act (Regulated Activities Order) 2001 (the RAO).
The Government’s amendment will allow HM Treasury to use an existing power under the Financial Services Act 2012 to disapply by order any provision of the CCA in connection with a ‘relevant credit activity’, if that activity becomes a regulated activity.
A relevant credit activity covers entering into an agreement of the type currently described in articles 60F(2) or (3), or exercising (or having the right to exercise) the lender’s rights and duties under such an agreement.
Implications of the Government's approach
This does not yet remove the Article 60F exemption or bring BNPL into the scope of regulation – that will only happen if the Government introduces a separate amendment to the RAO. It does however suggest that the Government intends not to apply all parts of the CCA to BNPL but will instead regulate it in a manner proportionate to the risks.
If all of the retained provisions of the CCA applied to BNPL, they would amongst other things:
- regulate the form and content of the pre-contract information and agreements provided by the lender;
- require the lender to send statements (in the case of a loan, if it had not been repaid within 12 months) and NOSIAs; and
- make the lender liable under section 75 for breaches of contract or misrepresentation by the supplier.
The FCA and HM Treasury may therefore be considering changes to switch off or dial down some of these obligations to reflect the lower risks presented by BNPL.
The FCA already has wide powers to amend the Handbook and we assume they will take a similar approach when applying CONC to BNPL.
The Bill is still subject to final votes in both Houses of Parliament. There will then need to be a consultation in due course on the disapplication of the CCA and CONC and the regime that will apply to BNPL.
There is currently no published timetable for this but when it published the Woolard Review the FCA indicated that it would give further details about its response to the review in its Business Plan which will be published in April.
Authored by Stephen Timbrell and Charles Elliot