UK

Status

Implementation underway - The government anticipates that proposed legislation will be put to the parliament before the end of 2023.

Is the country considering regulation?

Yes the UK government published a consultation on new BNPL legislation in February 2023, with the aim of specifically regulating BNPL before the end of 2023.

Current state of regulation regarding BNPL?

Currently many firms providing interest free delayed payment methods benefit from the exemption found under Article 60F of the Financial Services and Markets Act (Regulated Activities) Order 2001 (the 60F Exemption), which generally exempts them from the scope of regulation agreements where no interest is charged and where there are 12 or fewer instalments in as many months. Firms providing BNPL products benefitting from the 60F Exemption do not have to be FCA authorised (but see below as to the financial promotions exemption) and the agreements do not need to be in a prescribed form under the Consumer Credit Act 1974.

Although lenders do not need to be authorised they may still be subject to the Financial Promotions regime.  

Outline the proposals to change regulation?

The UK Government intends to regulate all forms of BNPL, meaning BNPL lenders will require authorisation from the FCA. Merchants providing credit for their own goods and services will continue to be exempt, for example, a dentist may offer payment via an instalment plan (interest free and <12 months) will continue to be exempt.

The Government’s intention is to exempt some merchants from credit-broking when introducing the customer to a BNPL lender – whether the merchant is exempt will depend upon the type of credit offered (if a merchant is referring a customer for interest free credit and <12 months/instalments the merchant will continue to be exempt). However, merchants will still need to have any promotions approved by an FCA authorised firm (which will likely be the BNPL provider who will now be authorised)

What if any will be the consequences of BNPL legislation on merchants, brokers and consumers.

As BNPL agreements will become regulated credit agreements, essentially most of the provisions under the CCA would apply to BNPL agreements (although we are yet to see which CCA requirements the FCA/Government will apply to BNPL).

As a result greater friction will be introduced to the customer journey which may discourage some customers from using BNPL. In addition affordability assessments will lead to greater customer protection however may also result in consumers being declined from using the service.

Greater compliance costs for BNPL lenders (including possibility of disputes being referred to Financial Ombudsman Service);
BNPL lenders will become subject to section 75 liability which is a concept unique to the UK under which a lender is equally liable for any failure of a supplier to provide the financed goods and service]