The Financial Conduct Authority has recommended the regulation of unregulated buy-now pay-later(BNPL) schemes
The products which are currently exempt from regulation should be brought within the regulatory perimeter as a matter of urgency.
The Woolard Review sets out how regulation can better support a healthy market for unsecured lending, taking into account the impact of the coronavirus (Covid-19) pandemic, changing business models and new developments in unregulated buy-now pay-later (BNPL) unsecured lending.
The use of BNPL products nearly quadrupled in 2020 and is now at £2.7 billion, with 5 million people using these products since the beginning of the coronavirus pandemic. The emergence and expansion of unregulated BNPL products gives consumers a significant alternative to more expensive credit, but this also comes with significant potential for consumer harm.
For example, more than one in ten customers of a major bank using BNPL were already in arrears. Regulation would protect people who use BNPL products and make the market sustainable.
Christopher Woolard, Chair of the Review, said:
‘Most of us will use credit at some point in our lives. So, it’s vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty.
‘Changes are urgently needed: to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic.
‘Alongside these urgent issues the Review sets out a series of recommendations for how the FCA, working with partners, can build a better market in future.’
UK households have nearly £250 billion of outstanding consumer credit debt and more than 42.5 million people used consumer credit in 2019