There is an “urgent need” to regulate all buy-now pay-later firms, according to the FCA-commissioned review of unsecured credit.
The review, led by Chris Woolard, the former acting chief executive of the regulator, explored whether more needed to be done to ensure a healthy, sustainable market where firms including Klarna and Clearpay have grown exponentially. In total, the report makes 26 recommendations.
Woolard placed significant emphasis on the unregulated buy-now pay-later market, which needs to be addressed “as soon as possible.” The report details how the market more than trebled in size in 2020, and says it poses potential harms to consumers.
Woolard’s review highlighted a few key issues:
• Products that are currently unregulated need to be brought under regulated as a “matter of urgency”;
• Free debt advice providers need access to long-term sources of funding to ensure the poorest in society have access to the help they need;
• Regulation should not just focus on affordability, but on conduct across the life time;
• Greater emphasis needs to be placed by the FCA, the government, and other stakeholders on ensuring a holistic approach to key issues;
• There are significant opportunities to build a better credit information market.
The report also recommended a strong provision of debt advice and debt solutions, as demand for debt advice is likely to more than double in the wake of the pandemic.
As part of this, Woolard recommends “identifying quick actions” to reduce or remove barriers to accessing suitable debt solutions. For example, the report suggested an emergency fund to cover the debt relief order application fee to those who need it most.
Woolard said: “Decisions on taking forward the 26 recommendations now rest with my former colleagues on the FCA board. Taken as a whole, I believe this report sets out how can have a better unsecured credit market in the UK, and I very much hope the FCA will put in place a programme, working with others, the deliver the recommended reforms.”
Helen Undy, chief executive of the Money and Mental Health Policy Institute — and a member of the advisory panel for the review, said: "Proper regulation of buy-now pay-later is long overdue and much needed, and we urge the FCA to act on the review’s recommendations.
"This credit has become increasingly easy to take out in recent years, and it’s now the default payment option for many online retailers. But the information about what happens if you miss payments is often buried in the small print and it’s hard to keep track of what you owe.
“Many people find it impossible to understand all the terms and conditions, and to make sure that they are borrowing an amount they can afford — leaving them at risk of falling into debt if they can’t keep up. Our research shows that people with mental health problems are particularly at risk, as they might find it harder to control the impulse to spend and to understand the implications of taking this credit out."