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The reality of regulation
The proposed regulation will mean bringing BNPL into consumer credit , which will have an impact on the retail sector . The process would mean any merchant offering BNPL would need FCA permissions . This would involve the merchants registering themselves as an Introducer Appointed Representative ( IAR ). This could be a challenge as the Consumer Credit Act 1974 was designed for the likes of mortgage brokers , actively selling finance to the customer who they were speaking to in real time . For BNPL , the merchant is simply referring customers from a website link , so going through all the extra detail of the onboarding process will become extremely challenging . Not to mention , having hundreds of thousands of merchants suddenly going through the FCA process would cause issues for the FCA itself .
Alternatively , it could be that merchants would need to partner with a lender that is registered with the FCA instead , allowing them to sign off any financial promotions . Adverts promoting anything related to BNPL will automatically become a financial promotion ( finprom ), which isn ’ t currently the case . This would mean lenders having the responsibility of monitoring all their merchants ’ ‘ finproms ’. Speaking from experience , this is the hardest part of being a lender with an IAR database . It means constantly monitoring content , making sure the correct disclaimers are used and they aren ’ t going outside permissions . Just imagine the impact on lenders with thousands of merchants .
Proposed regulation will also see customers gain powerful Section 75 protection on purchases made using BNPL . With section 75 liability and an FOS charge of £ 750 per complaint case , this would add huge cost implications for unregulated BNPL giants .
Impact on consumer spending
My assumption is that regulations coming into force will slow down customer usage of BNPL . I believe many customers were drawn to BNPL not just for its ease , but for the fact that it was not ‘ credit ’. I think those who need the service will continue to use it and those who are using it to make their disposable budget go a little further may think twice about the impact on credit scores . We don ’ t know how lenders are going to view BNPL usage and the effect it may have on assessing credit lines , this is something that only time will tell as regulations on the market tighten .
A balanced solution
It ’ s clear that regulatory changes come with challenges , but BNPL can ’ t stay how it is . Proportionate regulation would ensure customers are educated on BNPL risks and protected from falling into unmanageable debt . Filling the market with too much red tape is rightly alarming to merchants that have seen it as a lifeline during challenging economic
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