In early 2021, the UK government announced that it would be regulating interest-free BNPL products. We've mentioned before that the ASA can be a lot more nimble in its regulation, and after a consultation on policy options, the government is finally consulting on the proposed draft legislation that will bring BNPL into the regulatory ambit of the Financial Conduct Authority and give consumers the option of complaining to the Financial Ombudsman Service. The consultation goes wider than advertising, but we mainly consider the advertising issues here.
Currently BNPL agreements fall within the so-called Article 60(F) exemption in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. It covers interest-free agreements repayable in under 12 months and in 12 or fewer instalments.
The consultation does point out that BNPL agreements are not completely unregulated at the moment: they are covered by the CAP and BCAP Codes and enforced by the ASA. In addition, the financial promotions regime currently already applies to some scenarios where agreements are offered and the FCA has been able to take some action to improve standards in the BNPL market, for example by setting out concerns identified with BNPL financial promotions and reminding firms involved of their obligations when doing so.
However, the government recognised that there remain concerns about the way in which BNPL products are currently advertised. Therefore it proposes to narrow the exemption in Article 60F so that agreements currently subject to the exemption but provided by third party lenders will no longer be exempt. It has decided that it would be disproportionate to regulate merchant-offered credit provided online or at a distance so merchants offering credit themselves will not be regulated.
To mitigate the risk of potential consumer detriment from promotions made by unauthorised merchants, the government intends that those merchants will be required to obtain approval for promotion of agreements which will be brought into regulation from an authorised person (which could, but does not have to, be their lender partner). In practice, the government anticipates that merchants will not have all their financial promotions individually approved by an authorised person. Instead, the government's view is that third-party lender partners will provide pre-approved materials to merchants as part of the overarching commercial arrangements between the lender and merchant.
The government has decided that the following credit arrangements do not present a significant risk of consumer detriment and so will not require authorisation:
- trade credit, where a small business can defer payment for goods or services until its own customers have paid;
- agreements to finance insurance premiums, including where a third party, such as a broker, is involved in the transaction;
- employee credit agreements resulting from an arrangement between their employer and the lender or supplier; and
- agreements offered by a registered social landlord.
The consultation ends on 11 April 2023 after which the government will bring forward legislation. The FCA is expected to publish a separate consultation on its proposed rules for newly regulated BNPL agreements after the government’s response to the consultation.
Businesses that offer BNPL as a payment option at the checkout stage are advised to think about how they will ensure that promotions of those arrangements comply with the new regulations alongside the existing CAP Code rules.