Bank of Italy alerts on the implications of “Buy Now Pay Later” schemes for consumers

Bank of Italy has issued on 28^th October 2022 a communication concerning the “Buy Now Pay Later” schemes (“BNPL”).
  BNPL is a form of credit whereby consumers can purchase goods or services benefitting of deferred payment terms, also in instalments. BNPL is not specifically regulated in Italy and therefore the applicable regulatory framework (and related safeguards for consumers) depends on the specific features of the offered scheme. Bank of Italy has issued the communication to draw consumers' attention to potential risks also considering that BNPL might not fall within the applicable legal and regulatory regime of consumer finance services.
Bank of Italy has preliminarily specified the parties of a BNPL traditional scheme: (i) the consumer who acts as purchaser of goods or services; (ii) the seller of such goods and services and (iii) a third party which, pursuant to an agreement with the seller, grants to the consumer a deferred payment facility, also in instalments. This form of credit usually involves small amounts, can be offered online or in physical stores and is interest free (except in case of late payment or non-payment). BNPL is granted with a very swift procedure, i.e. without the execution of any credit assessment or on the basis of a simplified procedure.
BNPL scheme, according to Bank of Italy, can be mainly construed as follows:

1. in several cases, the deferred payment is granted directly to the consumer by a bank or a financial intermediary. In such a case, if (i) the service provides with a fee charged to the consumer (unless for small amounts in respect of consumer financing to be reimbursed within three months) and (ii) the amount of the credit is equal or higher than Euro 200, then the transaction shall fall within the scope of application of the legal provisions on consumer credit. Such provisions include, inter alia, the consumer’s rights (a) to receive a pre-contractual document (prepared in accordance with EU requirements), (b) to withdraw from the credit agreement within 14 days from its conclusion, (c) to early repay the credit agreement and (d) to terminate the credit agreement in the event of breach of the related agreement for the purchase of good or services (with subsequent right to receive by the lender the amount already paid).

If the conditions specified above under points (i) and (ii) are not met, the consumer credit provisions shall not apply. However, Bank of Italy specified that, when the financing service is provided by a bank or a financial intermediary, the safeguards pursuant to the banking transparency provisions shall be granted to the consumer, including, inter alia, (a) obligations regarding the advertising of the offered operations and services and the relating contractual conditions, (b) a pre-contractual informative, (c) the written form of the agreements and (d) the consumer’s right to submit complaints and to seek the Banking and Financial Arbitrator in case of dispute;
 

2. in some other cases, the BNPL scheme consists in the combination of a deferred payment granted by the seller to the consumer (without the charging of any fee or interest to the latter, apart from fees or penalties for late payment or non-payment) and the subsequent assignment of the receivable (due by the consumer) from the seller to a bank or financial intermediary. In such a case, the discipline regarding the consumers’ safeguards pursuant to the Consolidated Banking Act and the controls executed by Bank of Italy shall not apply.

Bank of Italy pointed out that such BNPL scheme could involve an additional risk for the consumer, since the latter may have difficulties to identify the entity which grants the deferred payment and to precisely understand the role of the intermediary in the context of the transaction. In particular, Bank of Italy highlighted that this BNPL scheme could lead the consumer to the erroneous belief that the typical safeguards available in the provision of banking and financial services would apply.
 
In light of the growing diffusion of the BNPL scheme, Bank of Italy will continue to monitor its application and to deepen its effects. The Authority also specified that the discipline regarding BNPL could be amended following the ongoing review of the Directive 2008/48/EC on credit agreements for consumers.
 
Carmelo Raimondo 
Raffaele Mollo