DPC: Key actions for lenders

The legal team at Auxillias writes: The FCA’s new regulatory regime for Deferred Payment Credit (“DPC”), previously known as Buy Now Pay Later, comes into force on Wednesday 15 July.
 Firms that intend to continue offering regulated DPC products after 15 July need to be confident that both their permissions and operational arrangements are in place.
 While much of the industry has been preparing for some time, the FCA has made it clear that firms should already be implementing the changes required under its final rules.

A quick reminder – what is changing?

From 15 July, many third-party DPC arrangements will become regulated consumer credit agreements.
From that date, firms carrying on relevant DPC activities will need to:
• hold the appropriate FCA permissions or be operating under the Temporary Permissions Regime (“TPR”)
• comply with the FCA’s consumer credit rules
• meet Consumer Duty requirements
• undertake appropriate affordability and creditworthiness assessments
• provide required customer disclosures and communications (pre-contractual disclosures)
• give access to the Financial Ombudsman Service
• have appropriate finance agreements, a key product information guide and additional product information for use, ensuring that appropriate governance, oversight and reporting arrangements are in place
 Importantly, agreements entered into before 15 July will remain exempt.

Five things firms should be checking now

1. Have you secured the right permissions?
Any firm intending to continue carrying on regulated DPC activities after 15 July must either:
• already hold the relevant consumer credit permissions; or
• have successfully registered for the FCA’s Temporary Permissions Regime.
 Note that the FCA’s notification window closed on 1 July.

2. Are your customer journeys ready?
The FCA expects firms to provide clear information that helps customers make informed borrowing decisions.
This includes reviewing:
• website journeys
• customer communications
• pre-contract disclosures
• terms and conditions
• arrears and collections communications
• complaints processes
 Many firms are finding that customer journeys developed in an unregulated environment require significant updating to align with FCA expectations.

3. Have affordability and creditworthiness processes been reviewed?
The FCA’s final rules introduce expectations around responsible lending and affordability assessments.
Firms should be comfortable that:
• policies and procedures are documented
• affordability processes are operating as intended
• governance and oversight arrangements are in place
• management information supports effective monitoring

4. Is your governance framework ready?
As with any newly regulated activity, the FCA will expect appropriate oversight from senior management.
This includes:
• ownership and accountability
• board and committee reporting
• Consumer Duty monitoring
• risk management arrangements, complaints and customer outcome monitoring

5. Can you evidence compliance?
One of the biggest challenges for firms entering regulation for the first time is demonstrating compliance.
Firms should be considering:
• policies and procedures
• training records
• governance documentation
• monitoring and testing activity, customer outcome assessments and management information
 The FCA will expect firms to be able to demonstrate not only that controls exist, but that they are operating effectively.

- What happens next?
 The FCA has indicated that it wants to support firms through the transition to regulation, but firms should not assume there will be additional implementation periods after 15 July.
 Businesses that have not yet completed their readiness assessments should be acting now to identify any remaining gaps before regulation day.

For more information please contact:
Jo Davis | 07741 240114 | Jo.Davis@auxillias.com
Daksha Mistry | 07458 304068 | Daksha.Mistry@auxillias.com

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