BNPL is popular with consumers as a form of credit because it is free at the point of use, widely accessible and user friendly. However, there is also clear evidence that BNPL is associated with financial difficulty, with those with BNPL debt more likely to be in problem debt than UK adults, more likely to be using credit to make ends meet, and more likely to be in arrears on household bills.
BNPL can cause or compound financial difficulty through factors including:
- ineffective affordability and creditworthiness checks;
- a low friction customer journey that can exploit consumers behavioural bias and vulnerability;
- unexpected late fees; and
- poor or inconsistent responses to financial difficulty.
Consumer sector research shows that BNPL users often spend more than they mean to using BNPL, regret borrowing and struggle with repayments.
StepChange broadly supports the government's proposed approach as a proportionate and pragmatic means of bringing BNPL within FCA regulation as quickly as possible.
The government's proposals to remove CCA information requirements and the associated sanctions, transferring the former in a tailored form into FCA rules creates new regulatory challenges and risks that the government and FCA should consider carefully in designing regulation.
More generally, past regulatory interventions have recognised that retail environments create consumer vulnerability and taken action, for example through a ban agreed with industry on offering discounts as an inducement to take out credit in a retail context. BNPL regulation is an opportunity to refresh and clarify expectations of regulated firms in this area.