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    HMT to Reform Consumer Credit Act and Regulate Buy-Now Pay-Later

    June 20, 2022

    Her Majesty’s Treasury (HMT) published responses to the consultation on its regulation for Buy-Now Pay-Later. Additionally, HMT announced that the UK government has committed to reform the Consumer Credit Act, which regulates all credit card purchases and personal loans.

    The responses to the consultation document set out how the government intends to regulate Buy-Now Pay-Later products. In particular, the government intends to:

    • Amend the scope of regulation to capture Buy-Now Pay-Later and other currently-exempt agreements (which are referred to as short-term interest-free credit) when they are provided by third-party lenders
    • Extend this scope to also capture short-term interest-free credit provided directly by merchants where it is offered online or at a distance, but further stakeholder engagement is necessary to fully understand the scale of the merchant-offered short-term interest-free credit market
    • Allow exemptions for specific agreements where there is limited risk of potential consumer detriment and where regulation would otherwise adversely impact day-to-day business activities

    The government’s approach to regulatory controls for agreements that will be brought into regulation will tailor the application of the Consumer Credit Act 1974 to these products and the elements of lending practice most linked to potential consumer detriment. Following the publication of this response, the government will engage with stakeholders to enable a final decision on whether the scope of regulation should be extended to include short-term, interest-free credit provided directly by merchants online or at a distance. Given the complexity of this regulation, the government intends to publish and consult on draft legislation at the end of the year. Following this, the government aims to lay secondary legislation by mid-2023, after which the Financial Conduct Authority (FCA) will consult on its rules for the sector.

    The government also plans to modernize consumer credit laws to cut costs for businesses and simplify rules for consumers. The government will move much of the Act from statute to sit under the Financial Conduct Authority, or FCA, enabling the regulator to quickly respond to emerging developments in the consumer credit market, rather than having to amend the existing legislation. It will also simplify ambiguous technical terms to clarify to consumers what protections they have and make it easier and more cost effective for businesses to comply with regulation. A consultation that is expected to be published by the end of this year will outline the government’s proposals and seek views from stakeholders on how the Act should be reformed.


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    Keywords: Europe, United Kingdom, Banking, Reporting, Basel, Credit Risk, Lending, Consumer Credit, Buy Now Pay Later, FCA, HMT

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