The Financial Services and Markets (Regulated Activities) (Amendment) (Amendment) Act 20133 (No. 2) came into force on 1 April 2014 (the “Date of Entry into Force”)4. Among other things, this Ordinance abolished the licensing system under the CCA and amended the FSMA and the Regulated Activities Ordinance5 to regulate certain activities related to consumer credit agreements. Two proposals will be considered. The first is that merchants who grant interest-free loans directly to consumers remain exempt from tax, while third-party lenders who grant interest-free loans for such transactions are subject to regulation. The second proposal concerns the nature of the agreement and the nature of the relationship between the consumer and the creditor. Creditors offering accounts to consumers where the creditor agrees to finance one or more transactions, but where repayments are made for certain arrangements entered into under that relationship, would fall within the scope of the Regulation. For the purposes of this exemption, activities carried on by P under or for the purposes of a service agreement are excluded from regulated debt advisory and debt collection activities related to a regulated credit agreement. is exempt from debt settlement, debt counselling, debt collection, debt management or the provision of credit information services.
60C.—1. A credit agreement is an exempt agreement within the meaning of this Chapter in the following cases. `exempted contract` means a credit agreement which is an exempt contract in accordance with Articles 60c to 60h; Companies that offer BNPL products to merchants currently benefit from a regulatory exemption under the UK`s consumer credit system. This allows lenders to offer interest-free loans on an unregulated basis if the agreement: (i) is a borrower-lender-supplier agreement (i.e. an agreement between the borrower and the lender to finance a transaction with a supplier), (ii) applies to credit of a fixed amount, (iii) the number of payments does not exceed 12, and (iv) payments must be made within 12 months of the start of the agreement. This exception is widely applied in particular to markets such as higher value consumer goods (furniture, appliances, etc.) and invoice financing that existed before BNPL`s expansion. As in the case of the regulated mortgage regime, there are exceptions under the consumer credit regime, including the determination of whether a credit agreement is an exempt agreement. 60D.—1. A credit agreement is an exempt contract within the meaning of this Chapter if, at the time of its conclusion, the amounts due under it are secured by a basic legal hypothec and if the condition laid down in paragraph 2 is fulfilled. Credit intermediation: It is provided that there is an exception, so that traders who present BNPL loans to consumers would not have to be allowed to carry out the regulated activity of credit intermediation. However, the exception would not extend to merchants who sell goods or services when visiting customers at home. Financial Support Plan: Retailers and other merchants should obtain approval from an authorized person (who could be, but is not required to be, their BNPL lending partner).
Pre-contractual information: Section 55 of the CCA would not apply and BNPL credit agreements should only comply with the FCA rules set out in the CFA Manual under CONC 4.2. Form and content of the agreement: Article 60 of the CCA and ancillary provisions would not be appropriate for BNPL agreements, so tailor-made legislation is proposed to cover the form and content of these agreements. Incorrect execution: It is currently unclear whether the CCA`s requirements for improper execution would apply to BNPL agreements. Credit ratings: The FCA`s current credit rating rules (covering both credit risk and affordability) should apply to BNPL arrangements, with the FCA assessing whether an adjustment would be required. Hm Treasury will also work with credit reference agencies to find an appropriate and feasible solution on how BNPL can be reported in consumer credit reports. Arrears, defaults and leniency (FCA rules) + CCA requirement for companies in financial difficulty: BNPL`s regulation is expected to include certain requirements for how companies treat customers in financial difficulty, possibly with some adjustments to ensure that the proportionality objectives of bnpL`s regulation are met. Creditor liability for goods and services: Under section 75 of the CCA, in certain circumstances, a creditor is jointly and severally liable for a supplier`s breach of contract or misrepresentation of goods or services. For Section 75 to apply, the item or service purchased with the credit must be between £100 and £30,000. The Government is considering applying this requirement to BNPL agreements. Small agreements: BNPL agreements for loans below £50 would not benefit from the exclusions for small agreements under Article 17 of the CCA. FOS and remedies: It is provided that consumers can file a complaint with the FOS under a BNPL agreement.
Looking to the future. certain practical considerations 4paragraph 56 of the Schedule to the Exemption Order grants an exception similar to that of paragraph 55 of the Schedule to the Exemption Order and described in perg 2.11.8G. It applies to the regulated activity of exercise or the right to exercise. the rights and obligations of the creditor under a regulated credit agreement. The most notable conditions are that the SPV avails itself of the exemption: although these conditions are likely to be met for most consumer credit securitizations without modification, there are prudent changes that can be made to the transactional documents to ensure that the conditions are met […].