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Why BNPL might not always be unregulated

As I've noted in an earlier blog, Buy Now Pay Later (BNPL), the short-term variant of retail point of sale finance, has been growing at a pace in the UK, and has been attracting its fair share of criticism, with calls for the sector to be regulated.

But is it actually the case that all BNPL is outside of regulation? As is so often the case with FCA rules, the devil is in the glossary.

Credit agreements for up to 12 interest-free payments are unregulated for fixed-sum credit, a defined term so we turn to the FCA glossary for the definition. It's any credit contract, other than running-account credit.

So what's running account credit? This is a contract under which the customer 'is enabled to receive from time to time from the lender or a third party cash, goods or services to an amount or value such that, taking into account payments made by or to the credit of the borrower, the credit limit (if any) is not at any time exceeded'.

Some of the largest BNPL providers appear to offer running account credit, rather than fixed-sum credit, using a 'credit limit' approach (that for some providers is transparent to the customer, and for others it is not available to them, but the approach is still described on the firms' websites).

This matters because the exemption that applies to running account credit is different than that for fixed-sum credit. For running account credit, it applies to payments of three months or less only, not 12 months, with one payment allowed per period covering the entire amount of credit provided (That rule is here under Rule 2.7.19G).

The 'one payment per period' rule has some history to it. It seems to date back to charge cards and 'Gold Cards' issued by American Express, Diners Club and some banks in the 1980's. These cards required all credit issued within a period - typically a month - to be fully repaid as one payment within the next three months, with no option to repay over longer periods as is common with today's credit cards. BNPL just doesn't seem to fit this rather archaic exemption, as each purchase results in a separate payment arrangement, not one consolidated payment per period.

Could it be that a BNPL provider that offers customers unlimited borrowing up to a defined credit limit, might actually be caught by the FCA regulation as it stands today due to this technicality in the exemption rules? It's certainly not always an obvious 'no'.

For more information on the Retail Point of Sale market see my Consumer Lending Resources page.


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