FCA ‘Buy Now, Pay Later’ Contract Changes Overview:
- Who: The Financial Conduct Authority (FCA) has told “Buy Now, Pay Later” (BNPL) companies Clearpay, Klarna, Laybuy and Openpay to update their contract terms.
- Why: The FCA determined the BNPL companies’ contract terms may have been harming consumers.
- Where: The FCA is Britain’s financial watchdog group.
The Financial Conduct Authority (FCA) has told four “buy now, pay later” (BNPL) companies to change their contract terms after finding they may have been harming consumers.
The FCA is requiring BNPL companies Clearpay, Klarna, Laybuy and Openpay to, among other things, make its contract terms related to continuous payments and contract cancellations easier for consumers to understand.
The BNPL companies have also agreed to voluntarily refund consumers who were charged late fees under “specific circumstances” due to the contract terms.
BNPL allows consumers to make on-the-spot purchases by applying for interest-free short-term loans that can be used to buy retail products.
The Woolard Review, published by the FCA in February 2021, meanwhile, found the market for BNPL products had quadrupled to £2.7 million in 2020.
Despite BNPL agreements not yet being regulated, the FCA said it was able to assess the transparency and fairness of the contracts by using the Consumer Rights Act as a guide.
“Buy now, pay later has grown exponentially,” the FCA said in a statement. “We do not yet have powers to regulate these firms, but we do have powers to review the terms and conditions of consumer contracts for fairness and have acted proactively to ensure that the BNPL industry adopts high standards in their terms and conditions.”
36% Of Consumers Don’t Understand Repayments, Study Finds
Consumers due refunds are those who were charged a late fee for a loan repayment on an order that was entirely cancelled where no parts of the order were returned, according to the FCA.
According to a December 2021 Barclays study, 36% of BNPL customers do not fully understand what the consequence is of missing a repayment while 52% remain unaware that BNPL firms don’t have to carry out “robust affordability checks.”
Thirty-six percent of BNPL customers, meanwhile, say they spend more money than they can afford on products because of the feature, according to the Barclays study.
In December, the FCA imposed a fine of £63.9 million on HSBC Bank after determining it had failed to properly monitor its systems for fraud and other financial crimes.
Have you used ‘buy now pay later’ to purchase a product online? Let us know in the comments!
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