The United Kingdom’s credit ecosystem is changing, according to an extensive update from industry body UK Finance. The regulation that now governs this seemingly critical area of consumer finance will see several bursts of change, with an outdated regime reformed and a new regulatory framework established for “a product that has fundamentally changed the credit market.”
UK Finance further noted that DPC or deferred payment credit, more commonly known as Buy Now Pay Later, is a “departure from established forms of credit, altering the way that borrowers and lenders interact.”
By the Financial Conduct Authority’s (FCA) own analysis, between 2017 and 2024, DPC lending grew from “£0.06bn to over £13bn, with 20% of UK consumers (10.9m adults) having used DPC in the 12 months to May 2024.”
Despite the prominence DPC now has, it has “remained unregulated, separate from the wider regulatory regime and the consumer protections that it enforces.”
UK Finance further stated that “separation ends next year.”
The FCA is targeting a July 2026 implementation date.
This date is supported by UK Finance members, who want “to move quickly to a more uniform system of regulation, removing any competitive advantages inherent to being outside of the regulatory regime.”
Regulation of DPC and the need for “reform of the Consumer Credit Act (1974) (CCA) are deeply intertwined.”
The outdated nature of the CCA is unsuitable for regulating “a tech-driven product like DPC, with it being a barrier to innovation across the wider unsecured consumer credit market.”
This acknowledgement has seen proposals “for certain of the CCA’s regulations to be disapplied for DPC products, which is supported by UK Finance but conditional on a similar basis for other unsecured credit products under the CCA.”
This broader reform should happen “at pace, so that benefits are felt sooner rather than later.”
UK Finance is broadly supportive of “the approach taken by the FCA to DPC, but in some areas some feel that an alternative approach is necessary.”
The FCA’s desire to avoid overly prescriptive requirements “to enable firms to tailor their communications and ensure more effective engagement with their customers is helpful, the Consumer Duty will cover this ground.”
But, when considering pre-contractual information, “a consistent industry standard and minimum level of key information should be provided to support customers in making informed decisions.”
This should be rationalized to focus “on essential information that is key to decision making, using language and a format that fits with lenders own market research.”
There was less support for such a mandated “approach to other stages of an agreement’s lifecycle; arrears information for example, will be underpinned by the Consumer Duty.”
Providing all information in one point of contact “can lead to customers being overloaded and overwhelmed.”
The Duty would allow firms to tailor their communications “to individual customers needs, setting an appropriate tone for key information, in turn improving effectiveness and customer engagement.”
The translation of the FCA’s Consultation Paper into regulation “does not represent the endpoint for DPC firms.”
The reformed CCA will apply, as will CONC, the Consumer Duty and other aspects of regulation, which firms will “be factoring into their future compliance plans.”
When the rules are finalized, the operationalization can begin.
Internal communications, marketing, agreement forms, IT systems all need to change “across a range of channels.” And they must be “user tested.” And colleagues need to be trained. UK Finance concluded that July does “not therefore seem so far away.”