Metrics Monthly Q1 | 22


Should BNPL fear regulation? David Wylie, CEO of LendingMetrics, says regulation need not have the same crushing impact on Buy Now Pay Later as it did on payday lending.

Those operating in the UK’s booming £2.7 billion Buy Now Pay Later (BNPL) industry are understandably concerned at the present time. It looks like the sector is in line for the sort of treatment that knocked the stuffing out of payday lending from 2015 to 2020. The Financial Conduct Authority (FCA) has the BNPL sector firmly in its sights, believing there is an 'urgent need' to protect shoppers from 'a number of potential harms', including the possibility of racking up thousands of pounds in debt and spending more money than consumers can afford. It says that although BNPL products are frequently interest-free, borrowers can be hit with default or missed payment fees and, as a result, may consistently take out additional loans that they will not have the means to repay. The regu- lator is particularly troubled by the fact

that 75% of BNPL loans are to the 18-35 year age group. Under plans being currently drawn up by the government, consumers will have to undergo far more stringent affordabili- ty checks and will ultimately be able to complain to the Financial Ombudsman Service if they believe a BNPL loan was ‘mis-sold’. The changes, which are currently subject to industry consultation, are intended to bring the sector into line with existing lenders like credit card and personal loan providers, where much tougher eligibility and ‘treating custom- er fairly’ checks already apply. Even though BNPL is not yet regulated, the FCA is already using the Consumer Rights Act to force some firms to make contract cancellations and continuous payment authorities fairer. It has also

stipulated that Clearpay, Laybuy and Openpay voluntarily refund some cus- tomers who have been charged late payment fees. Understandably, the fear at the back of the minds of everyone in the BNPL industry is that the impact of this new approach will be a claims chasing free- for-all, similar to the one that decimated the payday sector. Fresh in their minds "I have good news for those who are tempted to fear the worst and im- agine that a similar fate awaits them" will be the names of those that were weighed down and ultimately defeat- ed by the sheer volume of claims that came their way. Probably the most notable of these – Wonga – began down the slippery slope to administration with the intervention of the FCA in 2014, seeing a cap placed on what they could charge, stricter cri- teria on lending and a plethora of claims against them for irresponsible lending. The business wrote off £220 million of debt for hundreds of thousands of customers, which inevitably led to their downfall. Tales like that of Wonga have haunted the industry for years, with lenders wondering which sector will be next. Well, I have good news for those who are tempted to fear the worst and imagine that a similar fate awaits them. BNPL is in a much better place than that occupied by payday lenders five or so years ago. There is every reason to believe that - given the right precautions - the sector can still thrive over the next decade.

14 | Metrics Monthly

Q1 | 2022

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