Martin Kisby, Head of Compliance, EQ Credit Services
- EQ Credit Services’ Martin Kisby, Director of Compliance provides comment on the FCA’s announcement to review the unsecured credit market following ‘The Woolard Review’
- Report from former Financial Conduct Authority (FCA) interim chief executive Chris Woolard recommends that the ‘Buy now pay later’ sector be formally brought under the regulator's scrutiny
- The report concentrates on how regulation can better support a healthy market.
Earlier this year, the FCA issued a board report titled ‘The Woolard Review - A review of change and innovation in the unsecured market’ conducted by Chris Woolard CBE. The review has provided the FCA an opportunity to step back and consider the developments in the unsecured market and how the FCA and other authorities can take a holistic approach to regulation of the sector.
The report asks whether more can be done to ensure a healthy, sustainable unsecured credit market, and identified the following themes:
Learnings from the experience of COVID-19, there also needs to be a more consistent approach to forbearance across firms.
The economic effects of the pandemic will drive demand for debt advice.
Providers of free debt advice need access to secure, long-term sources of funding to ensure that advice is available to those in need.
For the good of consumers and firms, a more focused approach to regulating the credit sector that looks at how products are used in the real world. Regulation should focus not just on affordability, but on conduct across the lifetime of the product.
Learnings from the experience of COVID-19, there also needs to be a more consistent approach to forbearance across firms.
The significant finding from this review is with regards to the, currently, unregulated Buy-now-pay-later (BNPL) market.
The review identified that the use of BNPL products have nearly quadrupled in 2020 and is now at £2.7 billion, with 5 million people using these products since the beginning of the COVID-19 pandemic.
The review also indicates that whilst the emergence and expansion of the BNPL products has given consumers more access to alternative and the more expensive credit options there is still potential for significant harm, with more than one in ten customers of a major bank using BNPL already being in arrears.
Regulation would protect people who use these credit options and make the market sustainable, ensuring customers are treated fairly no matter what credit option they choose. Also, the provision of debt advice will be critical with demand increasing to as many as 1.5 million cases following the pandemic.
The report and recommendations are a positive step to ensure the ongoing protection of consumers in a period where vulnerability and an increase in debt is on the rise.
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Regulation is an important part of keeping the industry in touch with consumer behaviour and credit preferences. The fast, digital nature of BNPL is an attractive option for many to spread their budget and is reported to be the fasted growing form of credit in UK.
In the age of good governance, regulation can protect people who use these credit options. It makes the market sustainable and ensures customers are treated fairly no matter what credit option they choose. Lenders need to keep this sense of purpose in mind.
The FCA has welcomed the Woolard Review and supports the recommendations. The Board agrees that there is a strong and pressing case to bring buy-now pay-later business into regulation. They have now published their 2021/22 business plan which provides further details of the response to the Review.
Read the full comment from the FCA here
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This article is part of the 'Without Boundaries' series.