BNPL – Regulators Start Taking Action

BNPL faces regulation in: Ireland, New Zealand Sweden, Singapore, UK, USA and Europe which already has caps on fees and disclosure of competitive rates.

UK

The UK regulator the Financial Conduct Authority (FCA) has moved to change how BNPL apps deal with consumers forcing BNPL apps to amend terms and conditions and refund late fees charged in error – this is just the first step.

The FCA signalled in 2021 it was prepared to act and sent all BNPL apps detailed questions and information required to be supplied.

The UK has experience of unregulated lending crises - Wonga a payday lender went bust with a notorious reputation for its extortionate interest rates and mis-selling.

The crisis, a toxic symbol of Britain's household debt crisis played out from 2014 to 2018 impacting 400,000 consumers with over 200,000 owing £400 million in short-term loans and over 18,000 consumers making claims.

The UK regulators are keen to a void another crisis - as are politicians with 60 cross party members signing a letter requesting urgent action in October 2021.

See the Reuters and AFR pces below

AUSTRALIA

Yet Australia after 7 years (8 in March 2022) has no lending regulation and no oversight.

BNPL apps exploit a current loophole in the Credit Acts in Australia.

The Australian National Consumer Credit Protection Act 2009 (NCC) - The NCC does not apply to certain loans, including: low-cost short-term credit (less than 62 days), insurance premiums paid by instalments, bill facilities and staff loans.

In October 2021 the Australian Securities and Investments Commission Act 2001 (ASIC Act) have also brought BNPL products within the definition of a ‘credit facility’ for the purposes of the ASIC Act. Consequently, BNPL providers are subject to the unfair contract terms, unconscionable conduct, and misleading or deceptive conduct regimes under the ASIC Act."

But no action……....Why?

No politicians willing to sign any letters here!

REGULATOR ASIC RESEARCH SAYS IT ALL – BNPL’s DEBT TRAP

ASICs own research highlights key issues around young consumers over spending, buying items they don’t need and cannot afford.

Reports in 2018 and 2020 highlight key issues:

44% of users earn less than $40,000,

One in five users miss payments,

20% of users are cutting back on essentials because of over commitment and

15% sort additional loans to pay off BNPL debits.

These reports and a mountain of other research have failed to move Australian politicians and regulators, who prefer the BNPL spin that these products cause no harm and indeed greatly assist young consumers avoid ‘nasty’ things like personal loans or credit card

USA

The US regulator is concerned about users accumulating more debt than they intend and BNPL practises, including data use and sending demand letters to all BNPL users.

The USA regulator Consumer Financial Protection Bureau (CFPB) oversees implements and enforces Federal consumer financial law. US states also have a roll in regulation.

CFPB announced in December 2021 an inquiry into BNPL sector seeks data and management information from Affirm, Afterpay, Klarna, PayPal & Zip Co.

US regulators inquiry will have deep impact on Australian BNPL players - six of the 11 ASX listed companies operate in US.

There is also speculation that the ‘rent a bank’ licence as used by many BNPL apps will also come under scrutiny impacting players like Cross River Bank who fund Affirm – this allows BNPL apps to avoid all of the banking and acquiring issues.  

UK tells buy now, pay later firms to give refunds, rewrite contracts

AFR Hans van Leeuwen Europe correspondent  Feb 14, 2022 

Britain’s financial regulator has reasserted its hawkish stance on buy now, pay later companies, telling four of them to rewrite some of their “potentially unfair and unclear” consumer contracts, and to refund late-payment fees.

The Financial Conduct Authority’s (FCA) targets were Afterpay’s British arm Clearpay, ASX-listed Openpay and Laybuy, and Swedish firm Klarna, in which Commonwealth Bank has a minority stake.

All four are scrambling to build their share of the booming British buy now, pay later market, but with the shadow of potential government intervention hanging over the unregulated sector.

 “As a result of the FCA’s work, the firms are making terms on issues like contract cancellations and continuous payment authorities fairer and easier to understand,” the FCA said in a statement late on Monday (AEDT).

“In addition, one of the terms that involved late payment fees has resulted in Clearpay, Laybuy and Openpay agreeing to voluntarily refund customers who have been charged late payment fees in specific circumstances.”

The refunds will be paid in cases where a customer cancelled an order, but was charged a late-payment fee for a loan repayment after the loan should have been cancelled.

FCA executive director of consumers and competition Sheldon Mills said the four firms had all “voluntarily agreed to change their approach”, and other players should follow suit.

Wording updated

“Buy now, pay later has grown exponentially. We do not yet have powers to regulate these firms, but we do have powers to review the terms and conditions of consumer contracts for fairness, and have acted proactively to ensure that the BNPL industry adopts high standards in their terms and conditions,” Mr Mills said.

A Clearpay spokesperson said a “very small group of customers may have been incorrectly charged a late fee because we were not notified of them returning a purchase within a certain time frame”. These customers would be automatically refunded, and a dedicated web page would be set up.

“We have also updated some wording in our terms and conditions around returns, refunds and account closures,” the spokesperson said.

It is understood that for at least some of the companies, the FCA requirements accord with the firms’ de facto practices – so the financial impact is likely to be limited. The Australian companies have already been through an equivalent exercise with ASIC in 2018.

But the FCA’s announcement highlights the intense political and regulatory scrutiny of buy now, pay later in the past couple of years, after the market quadrupled in size in 2020 to £2.7 billion ($5.1 billion).

Some politicians raised concerns of a repeat of Britain’s payday-lending imbroglio, fretting that the unregulated sector would allow people to rack up unaffordable levels of debt.

Affordability checks

This prompted a formal review, which reported a year ago and flagged the prospect of regulations that might crimp the sector’s growth.

The reviewer, former FCA chairman Chris Woolard, said the government should consider making the buy now, pay later players conduct affordability checks before lending to customers, which could slow down consumer uptake.

It also suggested retailers might need to be classified as “credit brokers”, which could deter merchants from signing up.

But the industry breathed a sigh of relief when the Treasury released its response last October, signalling a relatively light-touch approach. A public consultation on the Treasury proposals closed last month.

The government is expected to produce legislation this year stipulating which buy now, pay later companies and activities should be regulated, and then the FCA will write the rule book.

Last year, a senior FCA official said buy now, pay later “carries risks and the potential for harm”, and the regulator would “act assertively on harm around the edges of our regulatory perimeter” – including using its existing powers.

The FCA made good on that threat on Monday, suggesting it still takes a more hawkish view of buy now, pay later than the Treasury.

Some of Britain’s banks are also trying to put pressure on buy now, pay later. Barclays issued a report on Monday focusing on negative findings from an Opinium survey of 2000 people it commissioned earlier this month.

 The survey found 24 per cent of buy now, pay later users were worried about their ability to repay, and another 31 per cent were “overwhelmed by the amount coming out of their account in BNPL bills”.

“Our research identifies the shortcomings of unregulated short-term interest-free credit options, and highlights that people are still not clear on the repercussions of not making repayments,” said Antony Stephen, CEO of Barclays Partner Finance.

Buy now, pay later players have sought to counter this with their data. Clearpay teamed up with Accenture last December on a report which said 20 per cent of its customers had stopped using credit cards since beginning to use buy now, pay later, and another two-thirds had cut back – saving them £28 million in credit card fees last year.

Britain cracks down on 'buy now pay later' firms

REUTERS By Huw Jones LONDON, Feb 14

 Britain's financial watchdog said on Monday it had told four 'buy now pay later' firms (BNPL) to change their contracts after identifying "potential harms" to consumers.

BNPL firms, which are unregulated, typically offer on-the-spot interest-free short-term loans that spread payments for retail goods like clothing.

The market more than trebled in size during 2020 to 2.7 billion pounds ($3.65 billion), when COVID-19 lockdowns saw more people struggling to make ends meet.

"The four firms involved, Clearpay, Klarna, Laybuy and Openpay, have fully cooperated with our work. We welcome their cooperation and their actions to address our concerns," the Financial Conduct Authority said in a statement.

While unable to regulate BNPL firms, the watchdog said it was able to use Britain's consumer rights laws to make their contracts fairer, easier for consumers to understand and better reflect how they use them in practice.

Klarna said it had already implemented the FCA's proposed changes.

"We have never received a customer complaint specifically related to our terms and conditions but are always open to ways in which they can be improved," said Alex Marsh, Head of Klarna UK.

The watchdog said that all firms in the sector should comply with all requirements of consumer protection laws that apply to their business.

One of the terms that involved late payment fees has resulted in Clearpay, Laybuy and Openpay agreeing to voluntarily refund customers who have been charged such fees in specific circumstances, the FCA said

Laybuy said it has worked hard to simplify its contract terms to make sure they are fair, transparent and easy to understand.

Clearpay said a very small group of customers may have incorrectly been charged a late fee, and it will automatically refund affected customers it is able to identify.

Openpay did not immediately respond to requests for comment.

A review by former FCA acting CEO Christopher Woolard in February 2021 said BNPL can pose potential consumer harms that need to be addressed as soon as possible.

Britain's finance ministry promised to bring forward legislation to regulate BNPL when parliamentary time allowed.

StepChange, a charity which helps people cope with debt, said the FCA's intervention was not a substitute for regulation to bring the sector under the watchdog's rulebook.

The FCA said it will consult on rules for BNPL after the government has decided which firms and activities will be regulated.

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