Ireland Becomes Unexpected First Mover For BNPL Regulation

May 18, 2022
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Ireland’s central bank has confirmed that it will be applying its consumer protection rules to buy now, pay later (BNPL) firms among other services.

Ireland’s central bank has confirmed that it will be applying its consumer protection rules to buy now, pay later (BNPL) firms among other services.

In what some critics consider a timely move given the growing cost of living crisis, the Central Bank of Ireland (CBI) has increased consumer protections regarding BNPL use.

BNPL providers will now have to be authorised by the CBI either as a retail credit firm or a credit servicing firm.

This has been enabled through the Consumer Protection Act 2022, which came into effect in April, and targets retail credit and credit servicing firms.

BNPL is just one of the services included in the reform, with hire purchase, consumer hire and personal contract plans (PCPs) also now in scope.

In a statement to the press, CBI financial regulation director Gerry Cross said: "Extending our consumer protection framework to these firms will ensure that Irish consumers receive the same protections that we require of other financial service providers.

“Our aim is to ensure that consumers have the same level of protection no matter where they source their financial services,” he explained.

Among the changes included, the new law also introduces an interest rate cap of 23 percent annual percentage rate (APR) on all credit agreements provided to consumers apart from money lending agreements.

The law requires that all retail credit firms must comply with Section 149 of the Consumer Credit Act 1995 and must notify the central bank if they want to introduce any new charges or increase any existing fee that has been previously notified.

Under the new rules, the central bank expects firms and their staff to comply with the necessary minimum competency standards, with a particular emphasis on staff dealing with consumers in relation to retail financial products, "at the earliest possible opportunity”.

The new rules will apply throughout BNPL firms’ structure. For example, advertising and marketing are now in the scope of the consumer protection rules, meaning that they must inform consumers of the charges that they may incur by using a BNPL product.

“Yesterday's announcement by the Central Bank of Ireland that providers of buy now, pay later, or as they termed it indirect credit, will be authorised is to be welcomed,” Ronan Gallagher, Dublin-based omnichannel chief at Trust Payments, told VIXIO. “It's important that consumers have confidence in their dealings with financial providers so extending aspects of consumer protection to BNPL is a welcome measure.”

"What will be interesting to see is what impact if any this will have on the providers in the Irish market,” he suggested. “Will BNPL providers who were considering launching in Ireland be more or less likely to launch here?”

Klarna, for example, has gone on the record saying it welcomes proportionate regulation that benefits consumers so it will be interesting to see whether it considers these changes proportionate, he pointed out.

Yet even though BNPL firms have been open minded about increased compliance, Gallagher did warn that the regulation could add additional costs, which may change the economics of BNPL provision.

“And, with firms like Klarna and Afterpay announcing increases in credit losses, any additional administrative costs will not be welcomed by the provider. However, they should not be afraid of the reasonable expectation of the central bank to have staff who meet the minimum competency standards.”

Ireland is not the only jurisdiction that is keen to introduce new rules on BNPL. The UK is expected to by the end of the year (although there were no commitments in the Queen’s Speech), while there are also ongoing discussions in Australia.

“It’s really interesting that regulations have been introduced so quickly in Ireland and if it does not stifle innovation it could potentially be a model to be reviewed in other countries,” speculated Gallagher.

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