By Kate Doran

The Woolard report recommended that the buy-now-pay-later providers are brought into regulatory framework as soon as possible and this fact has captured the headlines, but what does it mean?

BNPL products coming under regulation means that users will be subject to affordability checks before using the service. While some users might find this reduces the speed and convenience of using these products, these changes are designed to protect consumers, particularly vulnerable ones. It also means that any customer who has a complaint against a provider in this sector will have the right to escalate this complaint to the financial ombudsman service and seek recourse.

And what other proposals were laid out in the review?

The report addressed that the financial impact of Covid-19 will be felt for quite some time and that, for a healthy credit market to be maintained, a well-funded debt advice service is required to support it and consumers. The report called for long-term funding for such an advice service so that customers can access advice for free and calls on the FCA to support the Money and Pensions Service (MaPS) in any such endeavour. The introduction, in May this year, of the Debt Respite Scheme, which looks to protect people in debt from creditors, and Statutory Debt Repayment Plan, which protects debtors by stopping interest charges and fees associated with debt and provides an affordable repayment scheme, are two steps towards creating a less intimidating debt market for consumers.

Another key point from the report was that BNPL services have provided a mechanism for accessing credit for many who have few affordable alternatives. It called out that, despite encouragement, this market remains small and suggests that Employer Salary Advance Schemes (ESAS), Community Development Finance Institutions (CDFIs) or Credit Unions might be possible avenues by which this market can deliver at scale. The review also stipulated that these products need to be accessible beyond digital lending so that those who are unable, or uninterested, in using digital products still have access to credit.

The report also addressed the practice of “masking” credit files, whereby any payments that have been missed as the result of covid-19 are not reported on credit files. According to the review, in response to the consultation put out by the FCA, some expressed concern that the masking of credit files reduces transparency in the market and could possibly lead to reduced lending. However, an alternative suggestion was made that the FCA should consider implementing a temporary credit flag or look at reviewing credit information more widely in order to protect vulnerable consumers. The Woolard report included many recommendations that will bring greater scrutiny to a market that has been growing rapidly for several years. Crucially, the report addresses both historic and potential debt and highlights some key mechanism by which the market can be improved going forward.