The FCA has published a new report on the unsecured consumer credit market following a review by its former interim chief executive, Christopher Woolard.

The Woolard Review set out how regulation can support a healthy market for unsecured lending.

The regulator indicated that its review, commissioned by the FCA Board, takes into account the impact of the coronavirus pandemic, changing business models and new developments in unregulated buy-now pay-later (BNPL) unsecured lending. The use of BNPL products nearly quadrupled in 2020 and is now at £2.7bn, with 5 million people using these products since the beginning of the pandemic.

In total, UK households have nearly £250bn of outstanding consumer credit debt, and more than 42.5 million people used consumer credit in 2019.

The review has set out 26 recommendations to the FCA, which working with the government and other bodies, are intended to make the unsecured credit market “fit for the future”. These include the regulation of unregulated BNPL products as well as debt advice, alternatives to high-cost credit and “outcome focused” regulation.

Chair of the Review, Woolard, said: “Most of us will use credit at some point in our lives. So, it’s vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty.

“Changes are urgently needed: to bring BNPL into regulation to protect consumers; to ensure that there is secure provision of debt advice to help all those who may need it; and to maintain a sustained regulatory response to the pandemic.

“Alongside these urgent issues the review sets out a series of recommendations for how the FCA, working with partners, can build a better market in future.”

Commenting on the FCA’s targeting of BNPL regulation, interactive investor personal finance campaigner, Myron Jobson, described BNPL lending as a “drug that encourages impulse shopping”.

“The very existence of this form of lending flies in the face of the age old yet still important and relevant financial lesson of spending within your means,” Jobson said.

“It is clear that regulation of BNPL lending is needed to keep tabs on what is the fastest-growing form of credit in the UK.

“The explosion of this form of lending in recent history underlines the importance of financial education from a young age. While debt is not inherently bad, knowledge on how to keep on handle of it to keep it spiralling out of control is vital.”

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