It was only a matter of time - with the proliferation of easy access to credit through buy-now pay-later products ("BNPL") that are now available on everything from a bag of dog food to a couple of new sofas, it was inevitable that these unregulated lending products would come under scrutiny.

The Treasury has just opened a consultation to determine whether currently unregulated BNPLs should come within the regulatory perimeter.  Individually, each BNPL looks fairly harmless - they are interest-free and short term so why regulate?  Well, under the regulated credit regime, prospective borrowers are required to undergo a detailed creditworthiness assessment and are provided with a significant amount of information designed to ensure that the credit is affordable and that, in entering into the credit agreement, the borrower is making an informed decision.  Those same requirements don't apply to unregulated BNPL.

While a single loan is likely to be problem-free, a pre-Christmas online spending spree resulting in, say, 30 individual transactions (fours sets of grandparents, two sets of parents, partners, siblings, children, cousins, friends etc - believe me it adds up) all funded through unregulated BNPLs could cause serious affordability issues come the chill winds of January.

That is not to say that these loans should be subject to the full rigour of the regulatory regime for longer term facilities where interest and charges are payable and so it is good news that the Treasury recognises that a "balanced and proportionate" approach is the right one.  Consumers should be protected from harm but the legislators need to be realistic about what that harm actually is and how best to address it.

The Treasury is rightly cautious about the unintended consequences of bringing BNPLs into the regulated fold, particularly if it would bring in other products which should remain unregulated. Therefore something of a halfway house is proposed.  The suggested compromise is that BNPL providers will need to be regulated but will have their own lighter-touch set of FCA rules governing pre-contractual information, creditworthiness assessments and dealing with customers in financial difficulties. In addition, it seems likely that advertisements for BNPL will be brought within the financial promotions regime. 

What this means in reality is that frictionless credit could become a thing of the past - the customer journey will inevitably be slower and customers may find that they are unable to meet the affordability assessments and therefore need to step away from those impulse buys.  That may be no bad thing.

The consultation closes on 6 January 2022.