UK: Last Buy Now Pay Later Consultation Before Final Legislation is Laid in Early 2025

On 17 October 2024 a consultation on draft legislation of Buy-Now, Pay Later (BNPL) was published by HM treasury, which closed on 29 November 2024. This follows on from a previous consultation which ran between February and April 2023.

Final legislation is expected to be laid down in Parliament in H1 2025 the ‘Initial Commencement Date’, the Statutory Instrument (SI) will set a ‘Regulation Day’ which is 12 months from the SI being made, at which point BNPL products will become regulated.

At this point, the FCA will consult and finalise rules on disclosure requirements for BNPL agreements. 

Changes to the scope of regulation

The current exemption upon which many BNPL providers rely, the 60F Exemption, is being amended so that the exemption is not available where the supplier and lender are different (as is the case with BNPL where there is the BNPL provider (lender) and the supplier (merchant)). This means that even where BNPL providers enter into credit agreements with no interest and 12 or fewer payments in as many months (the current 60F Exemption) they will need to be FCA authorised.

The government have created a new anti-avoidance measure to prevent the restructuring of agreements by third-party lenders to become the merchant in the transaction they are financing having purchased the goods from the supplier.

Implications for merchants

The Government intends to retain an exemption allowing merchants to introduce their consumers to BNPL providers (so avoiding a credit broking authorisation) and allow merchants to provide their own credit (independent of BNPL providers) provided that the terms of the 60F Exemption continue to be met.

For merchants this means that when they are:

• introducing their consumers to BNPL providers for credit, should be able to continue relying upon the broking exemption (provided the credit is interest free and there are 12 or fewer payments in as many months);
  
• providing their own credit to their consumers (without any involvement of BNPL providers), merchants should be able to continue relying upon the 60F Exemption (because that exemption remains available where the lender and the supplier are the same person).

See immediately below in relation to financial promotions.

Financial promotions

The Government intends to ensure that promotions of newly regulated BNPL agreements are subject to the financial promotions restriction (the Government is proposing to modify a restriction would have exempted promotions of credit provided by authorised BNPL providers). This means that merchants promoting credit provided by authorised BNPL providers will need to have their credit approved by an FCA authorised firm (likely the BNPL provider they are partnering with). 

BNPL providers under the BNPL TPR regime (as to which, see further below) will not be permitted to authorise promotions made by merchants so it is unclear how merchants will be able to partner with BNPL providers in the TPR without breaching the financial promotions restriction.

Regulatory requirements applying to BNPL agreements

The requirements arising under the consumer credit regime (in particular, under the Consumer Credit Act 1974) are notoriously archaic, complex and cumbersome. The Government has therefore considered to what extent these requirements will apply to newly regulated BNPL agreements. The Government has said it has tried to balance consumer protection interests with the operational feasibility of applying consumer credit requirements to BNPL agreements.

A summary is set out below:

As noted above, the FCA intends to create bespoke rules for BNPL agreements which will be included within the consumer credit sourcebook (CONC) in the FCA Handbook. Given that these will be non-statutory requirements, the exact nature of this regime is yet to be determined and the FCA will consult on these requirements next year.

Distance marketing

To prevent duplication of information provided by authorised lenders and unauthorised merchants under the Financial Services (Distance Marketing) Regulations 2004 (DMRs), Article 4 of the SI would disapply the DMRs for unauthorised brokers where information is disclosed by authorised lenders in accordance with the FCA rules on distance marketing for authorised persons.

TPR for BNPL firms

During this period there will also be a window for firms to register under the Temporary Permission Regime (BNPL TPR) (not to be confused with the Brexit-related TPR).  Firms in the BNPL TPR will be permitted to continue entering into (newly regulated) BNPL agreements.

Firms in the BNPL TPR will be able to apply for full authorisation from the FCA, likely within a landing slot set by the FCA. Firms will be able to continue to make use of the BNPL TPR until their authorisation application is approved, refused, withdrawn or if they fail to apply within their designated landing slot.

The government invited stakeholders to respond to this consultation by 29 November 2024. Responses should be submitted to BuyNowPayLater@hmtreasury.gov.uk

Special thanks to Melissa Pentecost-Daley, Knowledge Manager – Payment Regulation, for co-authoring this article.