The FCA’s Chris Woolard: The way forward for buy now pay later (guest comment)

I’ve been listening to a lot of people’s views on buy now, pay later (BNPL) products over the past few months. That includes politicians, campaigners (including Martin Lewis), and the industry, but also people who use these products day-to-day. 

Isaac (all these names have been changed) told us he liked BNPL because it gave him more time to decide whether to keep what he buys. Maya felt that the option to pay in instalments meant she could afford to buy things that she couldn’t before.

But Harry found it tricky to keep track of what his payments were and when they were due, and Isabel was worried that people who don’t have control over their expenses could end up with a big debt. And none of the people we spoke to were confident they knew what might happen if they found themselves unable to make a payment.

Use of this type of loan has nearly quadrupled in the past year, especially as the coronavirus pandemic has meant we’ve had to rely much more on shopping online. Around £2.7 billion pounds is being borrowed. But many people don’t know that under current law, BNPL loans aren’t regulated.

Changing credit for the future

Today, I’m pleased to say that the Government and the Financial Conduct Authority (FCA) have agreed to my recommendation that this needs to change urgently. It’s a change Martin has also been campaigning for.

BNPL products can be an important alternative to other types of credit that can be far more expensive, but they come with their own risks too and it can be easy to get into debt. Regulating them will help people understand whether it is right for them, and give them more rights if they do.

This is just one of the changes that I’ve recommended as part of my review of unsecured consumer credit, published today. The FCA took on regulation of credit in 2014 and has made it work much better – capping payday loans, saving credit card customers up to £1.3 billion a year, making firms pay more than £900 million back to consumers in redress for their failings. 

But credit products and the way people use them has been changing in all sorts of ways, and this is a market that affects nearly all of us – more than 42.5 million people used credit in the UK in 2019. More needs to be done, and my report looks at the kind of credit market that will work for everyone.

A big task ahead

There’s a lot to do – for the FCA, for Government and for lots of other bodies that the FCA works with. To give you some examples:

• The economic impact of the pandemic means that many more people will find themselves needing help with debt, so free debt advice services need long-term funding, the broken market for individual voluntary arrangements (IVAs) needs to be fixed, and it’s unfair that the very poorest pay for Debt Relief Orders. 

• People who can currently only access high-cost credit still need more affordable alternatives, and the law should be changed to allow credit unions to help provide this. 

• The FCA needs to learn from the success of the measures it put in place to help firms to help their customers during the pandemic, and look at what might need to continue. 

• And overall, credit regulation should focus more closely on how people use products in the real world and how those products affect them over time.

You can read the full review and all of our recommendations on the FCA’s website. It’s going to mean a lot of work for regulators, for Government and the industry, but having a stable and sustainable credit market will make it well worthwhile for consumers.