Australia, the European Union, the United Kingdom and the United States are considering regulating the buy now, pay later (BNPL) sector. Last year, the three entities announced initiatives to bring these mostly unregulated products into a legal framework that could offer more protection to consumers.
Six months into 2022, regulators are still deciding what the next steps are. During these six months, some BNPL providers have taken this issue into their own hands and decided to voluntarily increase disclosure, transparency or even start sharing information with credit agencies to allow consumers to build a credit history. This is for example the case of Klarna, which since June 1 has shared BNPL purchases made in the United Kingdom with two credit agencies.
But in recent weeks, policymakers in some of these Western countries have resumed efforts to regulate the sector. Unlike in 2021, when the US and UK appeared to be leading a regulatory push, Australia and the European Union are now perhaps the countries that have taken the most steps to design a new regulatory framework.
Last week, Stephen Jones, Australia’s financial services minister, said the government would press ahead with plans to bring the BNPL under credit laws. BNPL providers are currently exempt from laws designed to protect borrowers using products such as credit cards or personal loans.
“Products like Zip and Afterpay, I think are a good innovation in the credit market,” Jones said. “Can we stop arguing about whether [they’re] credit or not? It really is a dead end street. Let’s start working on the regulations [them] in the credit area. We welcome the fact that they have introduced a code, [and will] move on to legislating and closing the gaps.
The EU bloc is taking tentative but quick steps to regulate the BNPL. Unlike other countries that may seek comprehensive BNPL regulations, EU regulators are modifying existing regulations to accommodate BNPL products and provide more consumer protection.
The European Commission is expanding the scope of its consumer credit directive to include new types of loans, and BNPL products are one of them. If these new rules are approved, BNPL providers will have to meet more transparency and disclosure requirements, but no obligations on the types of fees or the amount of loans will be imposed. Last Thursday (9 June), the Council of the EU adopted some amendments to the text which may be less burdensome for BNPL providers than the original text. This week, the European Parliament is expected to vote on the proposal at committee level. If the Council of the EU and the European Parliament reach an agreement, the new rules could be approved at the last plenary session before the summer break at the end of July.
Read more: EU Council Amendments to Consumer Credit Bill Favor BNPL Suppliers
BNPL products in the UK are unregulated as they have an exemption in the law for short-term credit-free credits. In 2021, the Treasury launched a consultation on BNPL with the clear intention of bringing these products into a regulated legal framework. The consultation closed on January 6, but neither the results nor an action plan have yet been published.
This consultation was to gather information from relevant stakeholders and the public, not to decide whether or not to regulate, and although this is likely, according to various stakeholders, it would be the Financial Conduct Authority (FCA), not the Treasury, which would design the new rules. However, given that the FCA cannot conduct its own consultation until it has the green light from the Treasury, any regulatory framework seems unlikely before 2023.
Read also: UK closes BNPL consultation, eyes new regulations in 2022
The Consumer Financial Protection Bureau (CFPB) opened an investigation into Buy Now, Pay Later (BNPL) on December 16, 2021. As part of this investigation, the CFPB asked five key BNPL suppliers to provide data intended to clarify the risks and benefits of this product for consumers. The agency also sought public comment on this issue. The deadlines for submitting information were March 1 and March 25 respectively, and now the agency must decide what to do next.
In one of the submissions, 21 attorneys general urged the CFPB to analyze the BNPL market and use its regulatory powers to increase fee transparency, disclosure, credit reporting, dispute resolution mechanisms and the use of consumer data, among others.
Yet despite the agency’s interest in regulating this space, CFPB Director Rohit Chopra did not list the BNPL sector as a priority when he testified before the House and Senate. He has mainly focused his attention on promoting open banking, imposing limits on “junk fees” and increasing surveillance of repeat offenders.