Simon Dukes, CEO of CDFI Fair for You and the Fair Credit Charity, shares his views on the FCA’s latest Buy Now Pay Later announcement.
The headline proposal in the FCA’s consultation on Buy Now Pay Later – that BNPLs really ought to check whether customers can afford to repay before offering a loan – is welcome if very overdue.
And beneath it, there is an unfortunate irony.
Like other responsible lenders in the Community Development Finance Institution (CDFI) space, Fair for You is here to serve those left behind or ignored by mainstream providers. Yet, it seems that we CDFIs are ourselves at risk of being left behind.
The FCA’s consultation, and a linked Government policy paper, make clear that BNPLs will not be captured by regulations on so-called credit broking. That is to say, a retailer will have no restriction on telling customers about those credit providers. They would not have to go through the rigmarole of applying to the FCA for a credit broking licence to allow them to say things to their customers like ‘split your payments with Klarna’ (to give just one provider as an example).
Meanwhile, the vast majority of retailers do not hold a credit licence, so cannot say ‘split your payments with Fair for You’.
This is because the exemption for BNPLs is not in place for CDFIs, despite the efforts of Fair for You and other Responsible Finance members. CDFIs, all of which are social purpose lenders and in our case a charity-owned entity and strictly not-for-profit, are therefore severely restricted in our ability to get in front of hard-pressed consumers – people who increasingly will have few or no affordable credit options, and who might find that BNPL just gets them into even more bother.
Don’t misunderstand me, I absolutely do not want the abolition of BNPL. The last thing that anyone interested in financial inclusion should want is a repeat of the high-cost credit vacuum, which has led millions to dangerous, unregulated lenders.
But I don’t think that it’s fair for us, as social purpose providers, to have to compete with BNPL on unfavourable terms.
BNPL providers have their place. At Fair for You, we know that many of our customers find them useful in certain circumstances despite their rigid, inflexible nature. As a CDFI we should desire a market in which consumers enjoy a good range of financial options. Right now, however, too few of them know CDFIs even exist.
We know that 62% of Universal Credit recipients, that’s millions of adults, have no money put away for a rainy day. BNPL’s upfront payment of a third of the cost of (say) a vital kitchen appliance might still be beyond reach, and a CDFI loan may be their only option. But it’s not an option at all if nobody is allowed to tell them that we exist – if an affordable lender offers loans, but there’s no one around to hear about it, will it ever make a difference to society?
There is a real opportunity here to level the playing field and expand access to affordable credit. But while regulation appears likely to extend BNPLs’ credit broking exemption privilege, CDFIs are still not being recognised for the vital role we play.
If we can’t increase awareness of affordable, ethical alternatives like CDFIs, hard-pressed consumers struggling to buy essential items and avoid illegal lenders will continue experiencing hardship, damage to their health, and the risk of getting trapped in a cycle of debt.