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According to research from Equifax, a third of UK adults have used BNPL, with the sector quadrupling in size during the Covid-19 pandemic.
As more and more consumers use interest free credit, the Financial Conduct Authority (FCA) is set to bring in new regulations to protect customers and merchants. In this article, we’ll take a closer look at what these new rules are, how they’ll support consumers and lenders alike, and what this means for your business.
What are the new BNPL regulations?
Previously, the BNPL industry has been free of FCA regulation due to repayment periods lasting for a maximum of 12 months – under the quota needed for regulation.
This, however, is all set to change. On February 14th 2023, the UK Government released the result of its consultation into regulation of the BNPL industry, including new draft legislation planned to be put forward to Parliament later this year.
The new rules, set to come into place in 2024, would give the FCA the power to regulate BNPL lenders. This essentially means that any lender wanting to offer BNPL credit would need to comply with the FCA’s regulatory requirements and consumer credit rules, including:
· Individual conduct rules
· Senior management conduct rules
· Consumer Duty rules
· Financial promotion and advertising rules
A full list of rules can be found in the FCA handbook here.
Alongside new regulations to comply with, lenders will also need to introduce better and more in-depth affordability checks, alongside clearer and more readily available information about their loans.
Customers will be able to make any complaints they have about lenders to the Financial Ombudsman, with proper penalties imposed for any breaches.
Finally, advertisements for BNPL products will also come under greater scrutiny when the new regulations come into place. The FCA has revealed that all promotions must be “clear, fair and not misleading,” following the Financial Promotions guidance.
What are the benefits of the new BNPL regulation?
The main reason for the introduction of new BNPL regulations is to ensure customers are sufficiently informed and protected, but it also brings a host of advantages for ethical lenders, like us at DivideBuy.
For consumers
For consumers, the new BNPL regulation will ensure a greater level of protection within the BNPL sector.
Credit checks will be implemented to make sure customers are truly eligible for credit, helping avoid unaffordable lending schemes that could potentially lead to debt. Couple this with stricter advertising rules, the need for FCA regulation and the support of the Financial Ombudsman, and it’s evident the new rules are there purely to safeguard consumers.
For lenders
DivideBuy pride ourselves on being an ethical lender. That’s why we welcome the incoming regulation and the additional protections it will give our customers.
The new rules will make sure that any lenders act with the consumer’s best interests at heart – connecting with their customer base and ensuring they’re informed about all decisions made. This, in turn, should lead to greater customer satisfaction levels and fewer complaints.
The BNPL regulation will also give lenders the opportunity to review all current policies and adapt resilient business models that are truly future proof.
What does this mean for merchants?
There’s no doubt this regulation is a plus for consumers, but what will it mean for your business?
Our main piece of advice is to choose the right BNPL partner. With new regulations set to come into place in 2024, merchants should partner with lenders who are well-placed to adhere to the new guidance, without breaking stride.
At DivideBuy, we have a rigorous credit approval process, tailoring each payment plan to the needs of each consumer based on the results of our Eligibility Checker, making fair and responsible lending decisions.
The new legislation will also require merchants to improve their advertising methods, to ensure consumers are not only aware that they are using BNPL services, but of the implications.
Here at DivideBuy, we provide dedicated merchant training on financial promotion guidance for eCommerce and instore advertising, to make sure you are protected and compliant with the new guidelines.
We also give our merchants approved templates for social media promotions to make the process as simple as possible.
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The new BNPL regulation is set to change the landscape of lending for the better, ensuring consumers are protected and lenders are responsible and fair.
We’re proud to put customers at the heart of our decisions by providing ethical interest free finance.
Interested in finding out more? Book a demo and speak to one of our team today.
