With approximately $97 billion in buy now pay later transactions last year, the increased popularity of the financial offering has garnered significant regulatory interest around the world.
As with any new financial product that didn’t fit in the existing regulatory framework, regulators raised concerns that consumers could be harmed if they didn’t intervene. In 2022, the Consumer Financial Protection Bureau (CFPB) in the U.S., the Treasury and the Financial Conduct Authority (FCA) in the U.K., the EU Parliament in the Europe and the Treasurer in Australia have been working on developing new rules, but none have proposed any comprehensive legislation yet.
As the legislative activity may come to a halt in many jurisdictions due to the summer recess, it is time to look at what may lie ahead for the rest of 2022 when it comes to regulating BNPL.
United States
In December, the CFPB launched a market monitoring inquiry, requesting information from five BNPL providers followed by a public consultation at the beginning of 2022. One of the respondents to the public consultation was a group of 21 attorneys general that urged the agency to regulate BNPL.
The Bureau hasn’t publicly stated what its next steps will be, but a recent blog post suggests that they may standardize credit reporting data in the sector. Nonetheless, in the initial letter sent to Affirm, Afterpay, Klarna, PayPal and Zip in December, the CFPB left the door open for enforcement actions or new rules if necessary.
In June, the CFPB published the Spring rulemaking agenda, which didn’t include any new rules on BNPL. Although the agency has expressed interest in regulating this space and could still propose regulations, it is unclear at this point if any new rules will come before the end of 2022.
Read more: 21 Attorneys General Urged CFPB to Regulate BNPL
The CFPB and BNPL: 3 Things to Watch
CFPB Wants Credit Reporting Standards in BNPL Sector
United Kingdom
In 2021, the U.K. was the frontrunner in the race to regulate BNPL. The government closed a public consultation in January. In June, the Treasury published the results of that public consultation and proposed the next steps. The recent turmoil in the U.K. government with the resignation of the Prime Minister may delay — but not halt — the Treasury’s plans to regulate BNPL.
According to the Treasury’s plan, stakeholders have until Aug. 1 to provide feedback to the government. After that, the government will propose draft legislation by the end of year. By mid-2023, following a second consultation, the aim is to lay secondary legislation before the parliament. The FCA will be able to propose its own, likely more extended, rules after the government passes the secondary legislation.
See also: UK BNPL Regulation Unlikely Before Mid-2023
European Union
The EU isn’t planning to design specific rules for BNPL usage. Nonetheless, EU regulators and policymakers are in the process of amending existing consumer credit rules that will likely change the regulatory landscape and affect the industry.
On Tuesday (July 12), The European Parliament’s Internal Market and Consumer Protection Committee almost unanimously approved the amendments that will likely require BNPL providers to be more transparent and push them to disclose more information. Despite this approval, other EU institutions still need 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 may allow member states to exempt BNPL providers from certain rules, but the scope of the law would still cover BNPL products.
Related: EU Council’s Amendments to Consumer Credit Bill Favor BNPL Providers
Australia
In June, Australian Minister for Financial Services Stephen Jones said that the government will push ahead with plans to bring BNPL under credit laws. BNPL providers are currently exempt from laws designed to protect borrowers who use products such as credit cards or personal loans.
In a recent intervention in a conference in July, Jones flagged plans to consult on options to improve credit regulation in Australia, including BNPL. He also mentioned that his ministry is monitoring developments in other jurisdictions like the U.K.
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