Commenting on the findings of the FCA’s Woolard Review on unsecured credit published today, Richard Barnwell, a financial services partner at BDO said:
“Given the rapid growth in the ‘buy now pay later’ (BNPL) sector, it was almost inevitable that the pressure would grow on the FCA to bring the sector under its regulatory remit, as it has done with other forms of consumer credit in recent years.
“The growth in BNPL has been further accelerated with the rise in online retail during the COVID-19 lockdowns and the ease with which this form of credit can be obtained.
“The FCA will have been conscious of previous criticism that it was slow in tackling consumer harm in the payday lending sector, so is keen to move quickly to address the risks associated with unaffordable credit in the BNPL industry. This will be particularly important in the post-pandemic context in which many consumers will be at greater risk of financial difficulty.
“In the case of payday lending, the regulatory requirements and associated costs imposed on the sector were such that many operators decided to exit the market. Due to the nature of the BNPL industry, with a comparably smaller number of dominant firms, it is likely that these firms will be more able to afford the costs of regulation, reducing the threat of operators withdrawing.
“The Woolard review also looked at competition and recognised the lack of incentives for mainstream lenders to offer alternative credit services. Therefore while any regulations are likely to come at a cost and operators will need to ensure their businesses are sustainable by working with the FCA to address concerns around affordability, the FCA acknowledges the need for any new regulatory framework to be proportionate.
“It will be interesting to see how the FCA will introduce regulation which deals with the potential harm to consumers, while also ensuring that the customer journey is not materially impacted given the digital nature of BNPL offerings.
“We expect to see more on the FCA’s regulation of consumer credit in the next iteration of its business plan, due to be published in April.”
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