HM Treasury Moves Forward with Proposed Legislation for Buy-Now-Pay-Later Lenders

On 14 February 2023, HM Treasury released proposed legislation1 directed at Buy Now Pay Later (BNPL) lenders2 - the result of a two-year consultation process to increase consumer protection in the unsecured credit market.

Whilst BNPL lenders are not considered financial institutions, the draft legislation states they will soon be under the purview and oversight of the Financial Conduct Authority (FCA) due to their role in providing a “frictionless means of accessing credit across multiple merchants.”3

The Background: Increased Regulatory Oversight for Third-Party BNPL Lenders

Under current UK law, interest-free agreements repayable in under 12 months and in 12 or fewer instalments are exempt from regulatory oversight.

Known as the “A60F(2) exemption,”4 lenders offering these terms do not need to be authorised or regulated by the FCA, nor are they required to comply with the Consumer Credit Act 1974 (CCA).

Whilst BNPL lenders are not considered financial institutions, their days as unregulated creditors are numbered. Under the draft legislation, the A60F(2) exemption will no longer apply to short-term, interest-free agreements offered by third-party lenders

By removing the exemption, BNPL lenders who wish to continue conducting business in the UK must be authorised and regulated by the FCA.5 This introduces new requirements, including restrictions on advertising and promotional material,6 increased oversight of precontractual provisions,7 and accountability to the Financial Ombudsman Service regarding customer complaints and dispute resolution.8