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The AltFi view on BNPL regulation: Too little, too late?

Announced in 2020, the Woolard Review’s recommendations for buy-now-pay-later regulation won’t come into force until 2022 at the very earliest.



Weekly Leading Article

We’ve seen fintechs outrun regulations in the past, but with a sector as big and influential as buy-now-pay-later, could attempts to enforce tighter restrictions on it be more of a drop in the ocean than the tsunami regulators are aiming for? 

Back in February, when the Financial Conduct Authority (FCA) published the long-awaited Woolard Review into the BNPL sector, it seemed as if the regulator was coming out all guns blazing, promising to impose more stringent restrictions on the largely unregulated sector.

But, it seems we won’t see any regulation come into play until 2022 at the earliest.

In the FCA’s business plan for 2021/2022, interim CEO Nikhil Rathi revealed that the regulator planned to “consult on new rules in 2022”—meaning that even if tighter restrictions were agreed upon, they still wouldn’t come into effect immediately.

At the time of the Woolard Review, HM Treasury promised it was “acting swiftly” to protect consumers from falling into debt from using BNPL products (or Deferred Payment Credit as the FCA is now referring to it), yet that speed is not forthcoming.

After a tough financial year for most, millions have turned to Deferred Payment Credit to help stretch their paychecks just that little bit further, many of whom are financially vulnerable or already in debt.

Meanwhile, the entire sector continues to operate in a regulatory grey area, with some referring to BNPL firms as modern-day loan sharks.

To be clear, many of the largest players like Klarna are already following best practices, with soft credit checks on their customers and a banking licence that brings with it heightened scrutiny.

Yet many smaller firms continue to operate in this grey area, failing to offer their customers the best care and support.

Innovation in finance always operates at the very edge of what’s “allowed”. We wouldn’t have challenger banks, BNLP or crypto if that weren’t the case.

Yet, for all its good work, the slow development of stricter restrictions for the BNPL sector by policymakers and the FCA continues to expose and allow millions of consumers to borrow beyond their means amid this time of economic crisis.

The regulatory grey area of BNPL needs to be addressed, and 2022 (or beyond) is simply too little, too late.

The AltFi Leader is a new weekly view for 2021 from our editorial team. We’d love to hear your ideas, thoughts, feedback and constructive criticism.

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