Which? responds to HM Treasury consultation on BNPL regulation

Which? has published its response to HM Treasury's consultation on the regulation of buy now pay later, dated August 2022, calling for the rules to be brought in sooner and for their scope to be widened¹.

The consumer organisation said the proposed timetable could mean regulation is not in place until 2024, or later once firms are given a transition period¹. It noted that almost two years have passed since the Woolard Review into the unsecured credit market, which it says highlighted "an urgent need to regulate all BNPL products"¹. Which? said it wants HM Treasury to consider options that would put regulation in place earlier, and that the FCA should consult earlier than outlined, alongside HM Treasury's consultation on draft legislation¹.

On scope, Which? welcomed the inclusion of short term interest free credit (STIFC) products provided by third-party lenders, but said merchant-provided credit should also be in scope so that consumers' indebtedness is visible in full when affordability assessments are carried out¹. It noted HM Treasury is only considering including certain STIFC products approved by merchants directly, and is minded to include merchant-provided STIFC sold online and at a distance once it better understands the scale of that market¹. Which? said a distinction between merchant and third-party credit could create market asymmetries and could let BNPL providers make small changes to avoid regulation¹.

Which? also said the consumer protections proposed for BNPL, particularly Section 75 rights and access to the Financial Ombudsman Service, should apply consistently to regulated STIFC products, adding that its research found consumers inaccurately assumed safeguards were already in place for BNPL transactions¹. It welcomed the government's commitment to review the Consumer Credit Act but said that review must not delay BNPL regulation¹. On the market's evolution, it said providers are offering the payment option more for in-store use, through internet browser extensions and are exploring in-app services¹.

Why it matters for households

Buy now pay later is currently unregulated, so users do not have the protections that apply to other consumer credit, such as Section 75 rights and access to the Financial Ombudsman Service¹. Which? said its research found consumers assumed those safeguards already applied to their BNPL transactions¹. Under HM Treasury's proposed timeline, regulation may not take effect until 2024 or later, and firms would then have a transition period before they are fully covered¹. Which? also cited research showing the average number of purchases being paid off has almost doubled since February, with 30% of consumers saying they are starting to find repayments unmanageable¹. Whether merchant-provided STIFC is included, and when, affects which agreements fall under the deferred payment credit rules and which remain outside them¹.

What happens next

Which? has recommended that the FCA consult earlier than outlined and alongside HM Treasury's consultation on draft legislation¹. HM Treasury is minded to include STIFC products provided by merchants online and at a distance within the remit of regulation once it has better understood the scale of the market¹. No date has been reported for when the government will respond to the consultation or publish draft legislation.