Global BNPL regulations will likely arrive at the end of 2022
With around $97 billion in buy-it-now transactions paid out as of last year, the growing popularity of the financial offering has sparked significant regulatory interest around the world.
As with any new financial product that does not fit within the existing regulatory framework, regulators have expressed concern that consumers will be harmed if they do not intervene. In 2022, the Consumer Financial Protection Bureau (CFPB) in the United States, the Treasury and the Financial Conduct Authority (FCA) in the United Kingdom, the European Parliament in Europe and the Treasurer in Australia worked on developing new rules , but none have yet proposed comprehensive legislation.
As legislative activity may come to a halt in many jurisdictions due to the summer recess, it is time to consider what lies ahead for the remainder of 2022 with respect to BNPL regulation.
In December, the CFPB launched a market surveillance inquiry, requesting information from five BNPL suppliers, followed by a public consultation in early 2022. One of the respondents to the public consultation was a group of 21 attorneys general who urged the agency to regulate the BNPL. .
The Bureau has not publicly announced what its next steps will be, but a recent blog post suggests it may standardize credit reporting data across the industry. Nonetheless, in the initial letter sent to Affirm, Afterpay, Klarna, PayPal and Zip in December, the CFPB left the door open for enforcement action or new rules if needed.
In June, the CFPB released the Spring Rulebook, which did not include any new rules on BNPL. While the agency has expressed interest in regulating this space and may yet come up with regulations, it’s unclear at this point if new rules will come before the end of 2022.
Read more: 21 attorneys general have urged the CFPB to regulate BNPL
The CFPB and the BNPL: 3 things to watch out for
CFPB wants credit assessment standards in the BNPL sector
In 2021, the UK was the favorite in the race to regulate BNPL. The government closed a public consultation in January. In June, the Treasury published the results of this public consultation and proposed the next steps. The recent turmoil in the UK government with the Prime Minister’s resignation may delay — but not stop — Treasury plans to regulate BNPL.
According to the Treasury plan, stakeholders have until August 1 to provide feedback to the government. After that, the government will propose a bill by the end of the year. By mid-2023, after a second consultation, the objective is to submit secondary legislation to parliament. The FCA will be able to come up with its own, likely more extensive, rules once the government passes the secondary legislation.
See also: UK BNPL regulation unlikely before mid-2023
The EU does not plan to design specific rules for the use of BNPL. Nevertheless, EU regulators and policymakers are changing existing consumer credit rules, which will likely change the regulatory landscape and affect the sector.
Tuesday (July 12), the European Parliament‘The Internal Market and Consumer Protection Committee almost unanimously approved the amendments which are likely to require BNPL suppliers to be more transparent and push them to disclose more information. Despite this approval, other EU institutions still have to approve the proposed rules, which may take a few months. However, an agreement is possible by the end of the year.
Some of the amendments proposed by the EU Council could allow member states to exempt BNPL suppliers from certain rules, but the scope of the law would still cover BNPL products.
Related: EU Council Amendments to Consumer Credit Bill Favor BNPL Suppliers
In June, Australia’s Minister of Financial Services stephen jones said the government will continue with plans to subject the BNPL to credit laws. BNPL providers are currently exempt from laws designed to protect borrowers using products such as credit cards or personal loans.
Speaking recently at a conference in July, Jones flagged plans to consult on options to improve credit regulation in Australia, including BNPL. He also mentioned that his department was monitoring developments in other jurisdictions such as the UK.