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The Irish Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 is proposing to give the Central Bank of Ireland the power to regulate all buy-now-pay-later (BNPL) activities.
The bill seeks to implement the main recommendation of the Tutty Report of 2018 regarding personal contract plans (PCPs). This is to extend the relevant provisions of the central bank’s Consumer Protection Code to all firms that provider consumers with hire purchase/PCP agreements. This, in turn, includes “buy now, pay later” finance that firms offer to consumers.
It proposes to do this by making the central bank regulate all such firms and subject them to the Consumer Protection Code, in particular the part that requires them to assess the suitability of products for consumers and the ease with which borrowers can repay their debts to those firms on time.
BNPL firms are going to have to register with the central bank as retail credit firms. Capital adequacy requirements do not apply to such firms. There will be a three-month "grandfathering" period in which existing BNPL firms can sign up without any bureaucracy.
Clause 5 states: "A person carrying on the business of a retail credit firm who did not require authorisation immediately before...is taken to be authorised to carry on the business of a retail credit firm until the Bank has granted or refused authorisation to the person, provided that the person applies to the Bank under section 30 for authorisation no later than 3 months after that coming into operation."
To make its rules stick, the bill aims to broaden the definition of "credit" in Part V of the Central Bank Act 1997 to resemble that in the Consumer Credit Act 1995. This will cover BNPL arrangements by stretching the term to include "deferred payments" and "other similar financial accommodation" alongside cash loans.
The bill is expected to reach the committee stage in the Irish parliament soon. The government originally wanted it to become law by the end of the year.
The Irish BNPL market is not particularly mature, although BNPL giants such as Klarna are expecting to see substantial growth there in the near future. At the moment, BNPL seems to be limited to larger products such as furniture.
Full payment usually occurs in a few months of the point of purchase. One of the Irish BNPL regime's good points for consumers is the fact that if they lag behind in their payments it will not have a deleterious effect on their credit ratings.
According to Globe Newswire, BNPL payment in Ireland is expected to grow by 50.5 percent on an annual basis to reach US$ 402.8m later this year. It continues: "Growth ... remains strong. The BNPL payment adoption is expected to grow steadily over the forecast period, recording a compound annual growth rate of 17.0 percent during 2021-2028. The BNPL Gross Merchandise Value in the country will increase from US$ 267.5 million in 2020 to reach US$ 1208.8 million by 2028."
Rob Brockington, CEO at Claro, struck a note of caution when he told VIXIO: “Unconsidered spending and an over-reliance on unsecured financial products, such as Buy Now Pay Later schemes, can ruin people’s personal finances for years.
“There are parallels between the safe use of credit cards and BNPL products, however there isn’t currently the same level of awareness around the considered usage of BNPL products like there is with 0 percent interest credit cards and their strict no repayment fee terms."
Brandon Spear, CEO of TreviPay in the US, told VIXIO: “Retailers are facing immense competition in the post-COVID economy, which has amplified the need to offer payment solutions that will drive revenue and customer loyalty. An emerging demand for omnichannel BNPL is now present among B2B buyers, after the option became ubiquitous for B2C purchases.
"To better attract and retain B2B customers, offering a digitised BNPL solution that provides payments flexibility in the sought-after speed and security of a B2C-like experience will provide retailers a leg up. B2B buyers have long required BNPL-like solutions — such as trade credit and payment terms — for their large enterprise purchases. Now, B2B retailers must modernise those BNPL transaction experiences with digital and mobile purchasing options for B2B shoppers, or risk losing them.”
