Earlier this week we heard the news that the FCA plans to loosen rules for ‘buy now, pay later’ (BNPL) lenders, around the level of information they are required to provide customers.
BNPL lenders are a fast-growing part of the UK’s financial services landscape, currently serving over 11m customers in the UK, with £13bn of existing short-term loans. Until recently, the sector was (in common with many other countries) unregulated in the UK.
The regulator previously announced plans to require BNPL lenders to provide more information to customers, carry out checks on the income and expenditure of customers with difficult credit histories, and offer support to those experiencing financial difficulties.
However, this week’s proposals have watered down the plans, meaning they would no longer have to inform customers in advance of the cancellation rights within the credit agreement, their right to complain to the Financial Ombudsman Service, or notify them of the lender’s ability to take funds from their account.
It is important that in a push for growth, responsibility towards customers – especially those that are vulnerable – is not forgotten. The FCA’s own analysis has shown that BNPL customers are more likely to be in financial difficulty than the average person.
The strengths of Consumer Duty from a service perspective
The FCA’s Consumer Duty regulations, which will apply to BNPL lenders from 15 July, is a good starting point. From this point their customers will have the right to escalate complaints to the Financial Ombudsman Service.
As ever, the challenge lies in finding a balance between protecting consumers and fostering a regulatory environment that promotes economic growth. One promising approach is outcomes-based regulation, which focuses on ensuring positive results for consumers rather than imposing rigid rules or minimum standards.
Consumer Duty is a good example of outcomes-based regulation. It lays out principles which firms must adhere to, but to a significant extent allows them to best decide how to do so, giving both consumer protection and the opportunity for businesses to innovate.
Through the design and implementation of the Consumer Duty framework, the FCA also maintained frequent dialogue with the sector – something we support with our FCA Consumer Duty roundtables.
Perhaps most crucially, it made a board-level individual responsible for the customer experience in businesses covered by the Duty. This elevated the boardroom conversation about customer service, away from chatbots and contact centres, to consider the holistic customer experience. While this part of the regulations has since been removed, many of our members who have implemented it intend to continue with this board-level scrutiny.
Trust, but verify
The FCA and the Government will no doubt be keeping a watchful eye on how the BNPL sector looks after all its customers as it continues to grow.
And it should be mentioned that leading names in the sector were already voluntarily conducting affordability checks on customers .
Showing that innovation in new markets can fill important customer needs, while ensuring they are appropriately protected will be key to maintaining sustainable growth into the long-term. And that will be good for customers, businesses and the Government alike.
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