Second consultation on draft BNPL regulations expected by end of 2022

HM Treasury published its response to the Regulation of Buy-Now Pay-Later consultation on 20 June 2022, setting out how unregulated interest-free buy now pay later products would be brought into regulation¹. The consultation had concluded on 6 January 2022¹. The Government indicated that the complexity of the new legislation means further consultation on draft regulations and a draft regulatory impact assessment will be required, expected to be published by the end of 2022¹.

The scope of regulation should capture BNPL as well as currently exempt agreements, referred to as short-term interest-free credit (STIFC), when they are provided by third-party lenders¹. The Government is "minded to extend" this scope to also capture STIFC provided directly by merchants where it is offered online or at a distance, but said further stakeholder engagement was necessary to understand the scale of the merchant-offered STIFC market¹. Exemptions will be allowed for specific agreements where there is limited risk of potential consumer detriment, and where regulation would otherwise adversely impact day-to-day business activities¹.

On regulatory controls, the Government said section 75 should not be disapplied for agreements brought within the scope of regulation¹. It added that current Consumer Credit Act requirements on post-contractual information, particularly the timing of when this information must be sent, may need to be tailored for BNPL and STIFC agreements given their sometimes very short-term nature¹. This sits alongside the Government's announcement on 16 June 2022 of its intention to reform the CCA, with a consultation expected by the end of 2022 outlining initial proposals¹.

The Government's view is that clear, consistent and timely credit reporting across the three main credit reference agencies will be an important part of the responsible provision of BNPL products¹. Proportionate regulation of BNPL should include the ability for consumers to access the Financial Ombudsman Service for issues concerning the conduct of lenders¹.

Why it matters for households

Buy now pay later lets shoppers split payments without interest, and these products have sat outside the rules that cover most credit. The Government's stated intention, announced on 2 February 2021, is to bring unregulated interest-free BNPL products into regulation¹. Until secondary legislation is laid, the current position is unchanged: no new rules apply to these agreements yet, and the timetable points to mid-2023 for legislation confirming the scope and framework of the new regime¹.

The response sets out which agreements are likely to be caught. Third-party lender BNPL and STIFC would be in scope, and merchant-provided STIFC offered online or at a distance may also be captured, while in-person in-store STIFC is described as carrying less risk because of greater friction during the transaction¹. Consumers using BNPL would, under the stated approach, keep section 75 protection for agreements brought into regulation, and would be able to take conduct complaints about lenders to the Financial Ombudsman Service¹. Credit reporting across the three main credit reference agencies is described as an important part of responsible BNPL provision, which could affect how these agreements appear on a credit file¹.

What happens next

HM Treasury requested further information on merchant-provided STIFC, outlined at Chapter 2, by Monday 1 August 2022¹. A second consultation on draft regulations and a draft regulatory impact assessment is expected by the end of 2022¹. The Government then aims to lay secondary legislation in mid-2023 confirming the scope and framework of the new regulatory regime, and the Financial Conduct Authority will consult in parallel on its approach to rule changes¹. The Government's separate CCA reform consultation is also expected by the end of 2022¹.