The Netherlands Authority for Financial Markets (AFM) raises concerns about age verification at BNPL

The AFM has raised concerns about minors accessing BNPL services, despite Billink, In3, Klarna and Riverty having adopted a code of conduct to prevent such access.

Towards the end of 2023, four major BNPL providers in the Netherlands, Billink, In3, Klarna and Riverty, have initiated a code of conduct. The code of conduct required clear disclosure of providers' costs, conditions and payment obligations. The goal was to empower consumers to make informed decisions and understand the financial impact of their purchases. More importantly, the code should provide protection for minors and financially vulnerable consumers.

Despite these efforts, the AFM has identified significant challenges and concerns with current BNPL practices. The AFM advises that underage individuals may be circumventing BNPL age checks as providers do not currently verify age on every transaction, but only do so for transactions deemed risky. In its market update, the AFM states that in 2023, despite a ban on lending to people under 18, there were 600,000 transactions with minors for an average amount of 50 euros. As they set off on their financial journey, already a significant risk behavior reveals.

Consumers who choose BNPL but do not pay their bill will incur additional fees: an average of 15 euros in addition to the original amount if the payment deadline is missed. If payment is still not made, the claim is handed over to a debt collection agency, which incurs an average additional cost of 40 euros. The AFM notes that this makes it an expensive form of credit.

Additionally, consumers can use BNPL to expand their financial capacity, even if they are already in debt. Missing a payment deadline only makes the financial difficulties worse.

While the Code of Conduct allows transactions to be reversed if it turns out that the customer was a minor, the AFM considers this measure to be insufficient. Given the widespread nature of this issue, the AFM urgently calls for the immediate introduction of mandatory identity and age verification for all transactions. The Dutch Finance Minister has announced that he and other ministers involved will examine whether age verification can be enforced.

What can the AFM do?

Currently, the AFM is faced with the challenge of addressing this issue due to a legal loophole as BNPL schemes fall outside the scope of the European Consumer Credit Directive (CCD). The exemption applies to credit services that are almost interest-free and offer a deferred repayment period of at least three months. Since payment terms for BNPL are typically between 14 and 30 days, they fall under this exception.

Therefore, BNPL providers are not currently required to comply with any specific disclosure requirements. Additionally, unlike credit card companies, BNPL providers are not required to conduct a thorough review of a customer's financial situation.

However, efforts are being made to close this regulatory gap. The CCD2, which aims to close this gap, was officially published in October 2023 and came into force in November 2023. EU member states are obliged to adopt and publish the necessary regulatory framework for CCD2 by November 20, 2025. Ultimately, CCD2 will completely replace the previous directive (CCD1 of 2008) on November 20, 2026.