BNPL products are a relatively new form of short-term consumer credit offered at points of sale, often interest-free, that have been gaining significant traction in consumers’ habits. Due to the simplified purchase experience they provide, as well as the associated marketing strategies, it is relatively easy for their true nature as credit agreements to be overlooked, with all its consequences for consumers. While often emerging in grey areas that so far, in many jurisdictions, had remained uncovered by preexisting regulation, BNPL products pose risks to consumers that should be mitigated, as well as challenges to regulators and supervisory authorities.
This Briefing Note, informed by a survey answered by 17 market conduct authorities, explores the concept and key features of BNPL, giving an overview of the legal and regulatory approaches, as well as the supervisory strategies put in place to tackle the risks and challenges it poses for consumers.
Risks to consumers include namely lack of transparency in advertising, pushing the option for BNPL products (instead of other payment methods) through subliminal means, lax credit check standards, and personal data protection issues. Effective intervention by supervising authorities is hampered by the shortcomings of existing regulation, the lack of knowledge by consumers about how this type of product works and the impact it can have on over-indebtedness.
However, significant efforts have been put to place by many jurisdictions to reduce that knowledge gap, as well as to produce regulation that extends adequate consumer protection standards to BNPL, while acknowledging their specificity within the wider domain of consumer credit, and to raise consumer awareness in relation to those products. To address such issues, supervisory authorities use enforcement powers in relation to BNPL providers, namely recommendations, penalties/administrative fines, and specific orders.
Looking ahead, supervisors can improve their data-gathering capabilities to provide updated and actionable market intelligence on leading BNPL trends and practices. Further, adequate consumer protection standards should be more widely applicable to the entities involved in selling and marketing BNPL regardless of their legal nature and the legal qualification of the underlying contractual arrangements.
BNPL is an area with significant room for consumer protection improvements. Regulation should be designed in a way that strikes a balance between ensuring adequate levels of consumer protection against its risks, while refraining from curtailing its merits. Despite the risks determined by this kind of credit product, BNPL still represents an easy and quick mean for consumers and households to increase their capacity of purchasing goods and services and may be a useful budget-management tool, depending on how it is provided and used.
