Third party providers of Buy-Now-Pay-Later (BNPL) services will soon be subject to regulatory oversight by the Financial Conduct Authority, after the Government confirmed the introduction of a new regime aimed at protecting consumers.

The announcement by the Government comes as part of its response to a consultation launched last year on proposals to bring currently unregulated BNPL products into regulation. As the consultation document explained at the time, the Government’s proposals sought to ensure that people using BNPL products “receive clear information, avoid unaffordable borrowing, and have strong rights when issues arise”.

Not all BNPL products will be caught by the new regulatory regime: those directly provided by merchants will continue to enjoy the exemption under Article 60F(2) of the Regulated Activities Order, something the response notes as “crucial…for low risk, everyday transactions”.

As for third party lenders, the new regime will include the following measures:

• Borrowers will be expected to have access to “simple, clear, understandable, and accessible information”. Whilst the information disclosure requirements in the Consumer Credit Act 1974 will not apply, the FCA will draft bespoke rules about the nature of the information that will be expected to be provided to consumers;
• Customers will benefit from the protection of s.75 Consumer Credit Act 1974 and be able to access the Financial Ombudsmen Service if something goes wrong;
• New rules will be introduced on affordability and creditworthiness checks.

The new regime is expected to take effect in the middle of next year after the FCA drafts, consults, and finalises its rules.

To read the consultation response in full, click here.