BNPL has been widely discussed within the Dutch House of Representatives in the last couple of months. During these discussions, the possibility of national legislation has also been discussed. In a recent report of a consultation in the House of Representatives from 12 June 2023, the Minister of Legal Protection provided an answer to the question on the necessity of national legislation on BNPL in The Netherlands. According to the Minister, national legislation would have little effect as it would not apply in the case a Dutch citizen buys a product from a foreign web shop using BNPL.
Current state of regulation regarding BNPL?
BNPL is currently excluded from consumer credit regulation as laid down in the Dutch Financial Supervision Act (“FSA”) (which relates to the authorisation of credit providers and credit intermediaries and rules of conduct) and the Dutch Civil Code (“DCC”) (which relates to the civil aspects of consumer credit agreements). BNPL providers are excluded of the consumer credit regime under the FSA (article 1:20 (1) (e) FSA) and DCC (article 7:85 (2) (e) DCC) considering that credit relating to BNPL has to be repaid within three months and only insignificant costs are charged. Accordingly, BNPL providers in the Netherlands are not subject to authorisation and therefore do not have to adhere to rules of conduct, such as a creditworthiness test, nor are BNPL products registered in the Central Credit Information System of the Dutch Credit Registration Bureau.
Also note that recently, there was a judgment in which the Supreme Court of the Netherlands was asked several preliminary questions on amongst others the possible qualification of BNPL as a consumer credit agreement within the meaning of title 2A of book 7 of the Civil Code. In the judgement it became clear that an affirmative answer to the main questions would have major implications for credit providers. Awaiting the revised CCD, the Dutch Supreme Court referred most of the preliminary questions to the Court of Justice of the European Union.
Outline the proposals to change regulation?
Late last year, the European Council, the European Commission and the European Parliament reached a preliminary political agreement on the revision of the CCD. Part of the agreement is that BNPL will fall under the scope of the CCD, which will better protect consumers using BNPL services. In practice this means that BNPL providers will have to comply with rules on disclosures and advertising and will have to perform a creditworthiness check. Moreover, the maximum credit fee will then also apply. A definitive agreement by the European Parliament and Council is to be expected in the summer of 2023, after which it will still take a while before the implementation in the various member states is completed. The latest version of the proposal dates from 26 April 2023 and is available via the following link.
The Dutch government aims to create the right framework conditions in order for consumers to use BNPL responsibly and is therefore committed to the review of the CCD to bring BNPL services within its scope.
What if any will be the consequences of BNPL legislation on merchants, brokers and consumers.
As explained under query 4, the scope of application of the CCD will be extended to BNPL providers, meaning that a comprehensive legal framework will become applicable. For BNPL providers not yet authorised to offer credit in the Netherlands, this will likely result in the obligation to obtain appropriate authorisation to legally do so. This also implies that BNPL providers will have to thoroughly review their business and revenue models, and the costs incurred in doing so. In principle, consumers' creditworthiness will have to be checked. Thus, information on the consumer's financial position and identity will have to be obtained, and the consumer will have to receive sufficient pre-contractual information to assess whether the credit is suitable for the consumer and the consumer's wishes. This is impactful for BNPL providers as it is precisely the speed and ease with which BNPL can now be used that makes it so valuable.
It is however proposed to provide for possibilities for proportional application of certain rules for specific credits at national level (relating to advertisement, precontractual information and contractual information). This would apply to credit agreements with a credit amount below €200; where the credit is granted free of interest and without any other charges; and where credits must be repaid within three months and where only insignificant fees are charged. The reason for this proposal is to avoid an overload of information for the consumer and excessive administrative burden for the creditor.
The extra paperwork and costs do not only affect the BNPL providers, also e-commerce offering this payment method will face regulation. As their work involves credit intermediation, this is in principle subject to licensing requirements. However, in its text proposal, the Council foresees the following exception: "Member States may exempt suppliers of goods and services who qualify as micro, small and medium undertakings and who act as credit intermediaries in an ancillary capacity or who grant credit in the form of deferred payment to purchase goods and services offered by them, without any third party offering credit, if the credit is provided free of interest and charges, except for limited penalty charges for late payments in accordance with national rules of general civil law from the requirements of admission and registration. This should not be used by large undertakings to avoid admission and registration requirements pursuant to this directive.” Therefore, it depends on the approval of this proposal and the position of the Dutch government whether the revised CCD has a significant effect on merchants offering their customers the possibility to purchase goods and services with BNPL. It is however likely that for large merchants, additional regulations (including an authorisation obligation) will apply to offer their customers the possibility to purchase goods and services with BNPL.
In relation to the consumers, all these changes will most likely have a negative effect on their purchasing process when using BNPL. Especially consumers in a financially unstable situation might be deterred from using this method as they will have to undergo age verification and financial background checks, which prevents them from taking on further debts.
This is still all hypothetical as the revised CCD nor the Dutch code of conduct in cooperation with BNPL providers have not been implemented yet. Even though these legal changes will have an impact on the consumers, the Dutch government believes that BNPL services will remain accessible to creditworthy households and believes that most consumers are able to make use of BNPL in a responsible manner if a proper framework exists.
