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Consumer Credit
Should BNPL fear regulation?
Regulation need not have the same crushing impact on Buy Now Pay Later as it did on payday lending
David Wylie Commercial director, LendingMetrics
Those operating in the UK’s booming £2.7bn Buy Now Pay Later (BNPL) industry are understandably concerned at the present time.
It looks like the sector is in line for the sort
of treatment that knocked the stuffi ng out of payday lending from 2015 to 2020. The Financial Conduct Authority (FCA)
has the BNPL sector fi rmly in its sights, believing there is an ‘urgent need’ to protect shoppers from ‘a number of potential harms’, including the possibility of racking up thousands of pounds in debt and spending more money than consumers can aff ord. It says that, although BNPL products are
frequently interest-free, borrowers can be hit with default or missed payment fees and, as a result, may consistently take out additional loans that they will not have the means to repay. The regulator is particularly troubled by
the fact that 75% of BNPL loans are to the 18-35 year age group. Under plans being currently drawn up
by the government, consumers will have to undergo far more stringent aff ordability checks and will ultimately be able to complain to the Financial Ombudsman Service if they believe a BNPL loan was ‘mis-sold’.
Changes The changes, which are currently subject to industry consultation, are intended to bring the sector into line with existing lenders like credit card and personal loan providers, where much tougher eligibility and ‘treating customer fairly’ checks are already apply.
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Even though BNPL is not yet regulated, the FCA is already using the Consumer Rights Act to force some fi rms to make contract cancellations and continuous payment authorities fairer. It has also stipulated that Clearpay, Laybuy and Openpay voluntarily refund some customers who have been charged late payment fees. Understandably, the fear at the back of the minds of everyone in the BNPL industry is that the impact of this new approach will be a claims chasing free-for-all, similar to the one that decimated the payday sector. Fresh in their minds will be the names of those that were weighed down and ultimately defeated by the sheer volume of claims that came their way. Probably the most notable of these –
Wonga – began down the slippery slope to administration with the intervention of the FCA in 2014, seeing a cap placed on what they could charge, stricter criteria on lending and a plethora of claims against them for irresponsible lending. The business wrote off £220m of debt for
hundreds of thousands of customers, which inevitably led to their downfall. Tales like that of Wonga have haunted the industry for years, with lenders wondering which sector will be next.
Good news Well, I have good news for those who are tempted to fear the worst and imagine that a similar fate awaits them. BNPL is in a much better place than that
occupied by payday lenders fi ve or so years ago. There is every reason to believe that –
www.CCRMagazine.com
We all know how assisted decisioning APIs – the Open Banking based platforms that automate much of a lender’s underwriting process – have improved the loan application process. There cannot be many who are still unaware of how they ensure rapid, optimal outcomes for both the lender and the borrower
given the right precautions – the sector can still thrive over the next decade. My optimism is largely down to one fact:
the automated back-offi ce systems that can now be employed are light years ahead of what was available to payday lenders when the claims chasing snowball began to gather momentum. We all know how assisted decisioning APIs – the Open Banking based platforms that automate much of a lender’s underwriting process – have improved the loan application process. There cannot be many who are still
unaware of how they ensure rapid, optimal outcomes for both the lender and the borrower. Platforms have been quietly working in the background for some time now, ensuring aff ordability criteria is always met and
March 2022
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