U.K. moves to regulate 'buy now, pay later'; student loan servicer told to pay up

Financial Times

‘A matter of urgency’

The U.K.’s Financial Conduct Authority is calling for the full regulation of the “buy now, pay later” credit industry “as a matter of urgency” because of a “significant potential for consumer harm.” Christopher Woolard, the agency’s interim CEO, “warned that billions of pounds were being lent in unregulated transactions — putting millions of consumers at greater risk of getting into financial difficulty.”

“Usage of BNPL products nearly quadrupled in Britain last year, taking total lending to £2.7 billion — with five million people taking advantage of them since the beginning of the coronavirus pandemic. They are now offered by many well-known U.K. retailers and typically offer the opportunity to split payments into three interest-free instalments. However, the FCA said many consumers did not realize they were credit agreements that could result in late payment fees — and found that more than 10% of customers at one bank who had used BNPL were already in arrears.”

“One of the unnerving findings of the Woolard Review into the unsecured consumer credit market was that some customers taking out” the payment plans “do not view them as credit at all,” an FT commentary says. “BNPL providers have been quick to welcome the prospect of a new regulatory regime, while maintaining that customers should not be stopped from accessing flexible payment options that provide an alternative to long-term debts. To strengthen that argument, they should work with retailers to make the credit relationship crystal clear.”

Bad milestone

Santander, “the eurozone’s largest retail bank, has reported its first-ever annual loss following provisions for bad loans during the pandemic and write-downs in the value of some of its businesses. It was already expected to report a loss due to the write-downs and provisions, which had been announced in the first half of the year, but the final loss of €8.8 billion was exacerbated by new costs related mainly to restructuring in its Spanish businesses in the fourth quarter.”

A BaFin with bite

Germany is planning to “create a special financial task force capable of carrying out forensic audits of companies suspected of fraud, part of a wide-ranging reform of financial regulator BaFin triggered by the Wirecard scandal.”

“I want a financial supervisory authority with bite,” finance minister Olaf Scholz said. Tougher oversight is “good for Germany’s financial markets and for investor protection,” adding that he wants a “more powerful, more rigorous and more effective” regulator.

Last week Scholz fired BaFin’s chief, Felix Hufeld, “who had become a lightning rod for criticism of the regulator and its failure to follow up on countless media and analyst reports about suspected fraud at Wirecard. Elisabeth Roegele, Mr. Hufeld’s deputy, was also forced out.”

Separately, Commerzbank “fired its former Wirecard analyst Heike Pauls after emails showed that she had briefed the disgraced payment company’s management about criticism of it that a hedge fund had shared with her. Ms. Pauls had been one of the most bullish supporters of Wirecard, recommending buying the shares in the Munich-based group right up until its insolvency last summer.”

Last month the bank “suspended the coverage of the companies tracked by Ms. Pauls immediately after” it discovered the emails.

New York Times

Pay up

Navient, the student loan servicer formerly known as Sallie Mae, has been ordered to repay $22 million it had overcharged the government for student loan subsidies more than 12 years ago. “The overpayments were brought to light when an Education Department whistle-blower raised alarms during President George W. Bush’s administration about a tactic multiple student loan financiers had adopted to manipulate a subsidy program intended to incentivize lending.” The money has gone uncollected—until now.

“Mitchell Zais, who became the department’s leader last month after Betsy DeVos resigned, issued an order on Jan. 15 telling Navient — one of the nation’s largest student loan companies — to refund the overcharged amount. The department’s enforcement action comes as consumer advocates are pushing for major changes in student lending, including the outright cancellation of hundreds of billions in government-held student debt. They are also pressing the department to crack down on student loan servicers like Navient, who have rarely been penalized for what government auditors have repeatedly found are extensive failures and mistakes.”