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Our response to Buy Now, Pay Later regulation

Written by Marketing Team

On Valentine’s Day, the treasury announced the final stages of its plans to regulate the UK’s Buy Now, Pay Later (BNPL) sector. The consultation outlines changes to be made for retail finance firms and asks the industry for feedback within the next eight weeks. After that, it’s legislation time. 

Today, we will break down what regulation will mean for the merchants operating in the UK, and more specifically, those who work with Divido.

A little background

Before we get into the changes afoot, let’s explore the conditions that got us to this point.

In 2021, Christopher Woolard published a review into the UK’s Buy Now, Pay Later (BNPL) sector. The review concluded that BNPL had the potential to cause serious harm to consumers and the sector should be regulated urgently.

The report pointed out that providers of BNPL make use of a loophole in the 1974 Consumer Credit Act (CCA). They use this loophole to offer deferred payments on items of less than £250 in value, without interest, for a period of up to 12 months.

Consumer groups became alarmed when a huge surge in BNPL during the pandemic brought an increase in the number of customers who were falling into financial hardship. The FCA responded by announcing a full review into the sector, publishing The Woolard Review in February 2021. Her Majesty’s Treasury began their consultation and there have been several noteworthy updates since then. 

In February 2022, for example, the FCA asked four of the largest BNPL providers to change their contracts in favour of consumers, using consumer rights law in lieu of regulation. In June 2022, HMT outlined the shape regulation might take. 

In the time since the Woolard Review was published, the global BNPL sector has grown from $15.91 billion in 2021 to 22.86bn in 2022. 

Which brings us to today

This week, the government confirmed the following:

  • Advertising must be clear – some marketing campaigns have positioned BNPL as a lifestyle product, with little to no mention of credit. Providers will now have to explicitly state the risks involved with taking on debt
  • Consumers will get Section 75 protection on BNPL purchases – Already in place for credit card users, Section 75 will give greater protections should something go wrong with a purchase (the retailer going out of business, for example)
  • Complaints can be made to the financial ombudsman – Consumers will now be able to address abuses by providers by bringing them to the attention of the financial ombudsman
  • The FCA will keep companies in check – Regulation will give the FCA the powers to enforce these laws

These new rules will come into force towards the end of 2023, and most providers are already working to be compliant within the new framework.

Divido: On the right side of regulation

Readers of this blog will know that Divido has long been in favour of regulation. We have supported government involvement since Christopher Woolard first published his review into the sector way back in 2021. 

But even before that, we were partnering with Tier One banks and regulated lenders to offer responsible financial products to our merchants.Our platform connects enterprise merchants to financial institutions who are already highly regulated in other aspects of their business. 

While some retail finance products are currently exempt from consumer credit laws, the organisations we work with still offer these products in a regulated way. Regulation will have little to no impact on the way Divido or any of our lenders do business.

We have always believed in offering responsible credit and we will continue to do so. Our investors include some of the biggest names in banking and payments – HSBC, ING, American Express, Mastercard. We partner with experts in lending. The legacy institutions who have decades of experience to lean on (which becomes particularly important in economic downturns). 

We are on the side of banks, and as such, we are on the side of regulation.

We welcome the changes and look forward to a level playing field, where consumers are protected from financial harm by all players in the industry.

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