At Qlarifi, we take the view that regulation, appropriately targeted and tailored to the BNPL industry, can be highly productive. In particular, measured regulations can help preserve access to credit in the form of innovative products like BNPL by promoting an inclusive and modern financial ecosystem.
This view is shared by BNPL players such as Affirm, who set out in their comment on the CFPB’s latest interpretive rule (applying parts of existing credit card regulations to BNPL products); “Affirm asserts consumers and the BNPL industry would be better served by BNPL-specific regulations designed for how consumers use BNPL products.”
In the UK, Klarna announced more than a year ago that it was “ready for regulation” and bemoaned the slow-moving nature of the legislative process, where discussions have been ongoing for more than three years (and still no changes to the law).
The devil is in the detail, as demonstrated by the back-and-forth in the UK, and Affirm’s public comment to the CFPB (which is far more technical than the proposed rule itself). While it is easy for industry players to get behind broad-brush statements such as “BNPL should be regulated in order to protect consumers”, it takes knowledge of the BNPL industry to design a regulatory regime which achieves consumer protection goals without hampering the innovation inherent in the BNPL industry or limiting consumer choice.
At a minimum, BNPL-specific regulations must incorporate at least the following:
As a guiding principle, identify the BNPL-specific metrics that best predict consumer credit risk, as well as responsible repeat usage which should be reflected in an increased credit score;
Recognise the distinction between BNPL as a non-revolving form of credit which presents lesser risks than revolving credit and is understood differently by the consumer. Disclosure-related requirements should reflect this important distinction.
Allow innovative technologies to develop without overbearing red tape and ill-fitting compliance requirements which stifles progress in the lending industry.
We see our role as fundamental to helping BNPLs and regulatory authorities solve this problem. Transparency for the aggregate lending to consumers will be the solution, not forcing BNPL products into an ecosystem designed for completely different materials.
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