Heralding the publication of the Woolard Review, Treasury published its exchange of letters with Chris Woolard confirming the Economic Secretary’s agreement with the recommendation to regulated interest-free BNPL products, and confirming that legislation will be brought forward “as soon as Parliamentary time allows”. Mr Woolard had pointed out in a letter of 19 January that he had agreed with the FCA board (and Charles Randell wrote separately) to highlight his recommendation to bring these products within the regulatory perimeter as soon as possible, particularly given the current interest in the topic and the parliamentary passage of the Financial Services Bill.
The main concern is that, although average single value transaction rates are low, the ability to use multiple providers across transactions would mean that debt of £1,000 could easily build up without being visible to CRAs or mainstream lenders. He also noted that some retailers offer a choice of providers, so customers can easily, and do, shop around if one provider refuses the credit. Although it is partly true that younger consumers prefer one off transactions to using a traditional credit card, the study also found that over 10% of customers using BNPL were already in arrears of mainstream debt.
Treasury are aware of the key concerns of:
- consumers not really understanding the product, but assuming it was regulated and that therefore they would, for example, have FOS access in relation to complaints about it;
- providers focusing more on benefiting retailers, who get more business when customers use BNPL and therefore the risk that customer journeys are not tailored to the interests of the consumer; and
- lack of basic customer protections, such as affordability assessments, the potential for high levels of debt and no scope for protecting vulnerable customers, added to the lack of transparency of levels of debt
FCA is concerned that non-financial firms using the interest-free credit exemption in the way it was intended should not be brought within the perimeter.
Treasury has also published its response, from John Glen, on 28 January, agreeing with the principles of the recommendations.