Statement by Innovate Finance on HM Treasury consultation on regulation of buy now, pay later credit
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Innovate Finance welcomes the UK Government consultation on regulation of interest-free, ‘buy now, pay later’ credit, also known as ‘deferred payment credit’ .
As the industry body representing the FinTech community in the UK, we strongly support a regulatory framework that protects consumers, builds confidence, and facilitates a dynamic and growing market. We believe this can best be achieved through an approach that enables technology solutions and innovation to deliver good outcomes for consumers. We welcome the UK Government’s focus on a proportionate approach to regulation.
Buy-now, pay-later agreements are a helpful way for many consumers to manage their personal finance and their interest free nature means there is no ‘poverty premium’. These products can help people manage cashflow and pay for unexpected or ‘lumpy’ expenditure
Bringing these services into the regulatory framework should provide consumer protection and confidence whilst supporting a healthy and growing market that maintains the benefits of buy-now, pay-later products. This must be done in a way that is proportionate, supports sustainable and responsible credit providers, fosters innovation and provides consumers with choice.
Regulation should be designed to address the outcomes identified in the Woolard Review:
- Consumer understanding of buy-now, pay-later products, to provide clarity and certainty for consumers;
- Responsible lending: including presentation of the offer, affordability and outcomes for consumers in vulnerable circumstances;
- Credit information: considering how buy-now pay-later providers interact with the wider credit market, particularly in relation to access to and the sharing of credit information.
We support an approach that achieves these outcomes through:
- a digital approach to affordability assessment, that reinforces responsible lending practices.
- digital tools for consumer information and education
- building a more agile and intelligent credit information market, recognising the value of new data sources such as Open Banking
- ensuring close interaction and consistency on approach and interpretation between the FCA and other interested parties, such as the Financial Ombudsman Service
- broad consistency with other international approaches, to maintain competitiveness
- greater regulatory clarity and market consistency on managing arrears and forbearance
- a holistic approach to bringing the sector into the wider regulatory perimeter including joined-up thinking with other regulatory initiatives, such as the FCA’s proposals for a Consumer Duty and development of open finance
We believe it is possible to take a proportionate approach that harnesses innovation to strengthen consumers’ financial well-being.
Achieving these outcomes will require the involvement of the UK FinTech ecosystem. We have therefore set up a policy group of Innovate Finance members to help us develop our input. This group brings together ‘Buy-now, pay-later’ providers and other FinTechs which specialise in credit decisioning and ratings, Open Banking / Open Finance, financial inclusion, payments systems and RegTech.
Eight months on from the Woolard Review, it seems unlikely that a new regulatory regime will be introduced before 2023. Credit providers and retailers need certainty and clarity on the regulatory approach, to enable them to develop products and services with confidence. This requires a clear timetable for the development of the regulatory regime which:
- is agreed between HM Treasury and the FCA,
- allows for meaningful engagement from industry,
- joins up with other related regulatory consultations (such as consumer duty) and
- avoids undue delay. The market will continue to develop in the absence of a new regulatory regime, and this will potentially make the application of new regulation more complex.
- sets out legal obligations and regulator expectations and practices in ways that are easy to find, easy to navigate, and clear and easy to understand.
We want to thank HM Treasury for putting together this consultation paper and for giving the industry the opportunity to provide its point of view. We are looking forward to responding and engaging in further open dialogue with the government and regulators on this important issue.
We have to get the details right, but in principle this consultation provides the basis for developing a regulatory approach that protects consumers and supports continued innovation.
