Credit, Collections & Insolvency News
The Financial Conduct Authority (FCA) has warned firms that offer Buy Now Pay Later (BNPL) products that although some agreements are unregulated after finding that some lenders were using web adverts and posts from social media influencers that are breaking rules.
The FCA also reminded the businesses that the financial promotions of all BNPL products must comply with the financial promotion rules and that unauthorised firms might be committing a criminal offence if they don’t have an FCA-authorised firm approve their financial promotions.
Authorised firms selling unregulated or exempt BNPL products must comply with the relevant rules unless an exemption applies. This includes that their BNPL financial promotions must be clear, fair and not misleading.
The FCA is concerned consumers could be misled if BNPL financial promotions do not comply and has seen financial adverts on websites and social media, including posts by social media influencers, which may breach FCA rules. For example, adverts emphasising the benefits of BNPL products without fair and prominent warnings of any risks to customers, such as:
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said “As we face a cost-of-living crisis, consumers are having to make difficult decisions about their finances and how they pay for goods and services.”
“Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely and properly informed decisions. It is vital that adverts are clear, fair and not misleading.”
Although the FCA does not yet regulate BNPL products it has been proactively addressing concerns about potential harms to consumers. The FCA recently held a roundtable with BNPL providers to discuss upcoming regulation and called on firms to do more to support borrowers in financial difficulty, including signposting to money guidance and debt advice.
Earlier this year, the FCA worked with BNPL firms to secure changes to potentially unfair and unclear terms in BNPL contracts using powers under the Consumer Rights Act.
The FCA is continuing to engage with BNPL providers and are proactively monitoring the market to ensure expectations are met. The FCA has confirmed it will use criminal and regulatory enforcement powers if it sees promotions that do not comply. So far this year, FCA action against firms that have breached its rules have led to 4,226 promotions being changed or withdrawn.
Commenting on the findings, Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “Social media influencers flogging Buy Now Pay Later loans may be encouraging people to take on debts they don’t understand. At a time when rising prices have pushed so many people’s finances to the edge, piling up unaffordable levels of debt risks pushing them into the abyss. The financial watchdog has issued a warning to social media influencers and firms about the dangers of breaking the rules around advertising these products.”
With so many people under intolerable financial pressure, there’s a risk that more of them hunt for any way to make ends meet. Buy Now Pay Later seems like a cost-free solution, but if people don’t understand what they’re getting into, they could rack up unaffordable debts and face serious consequences.”
Buy Now Pay Later isn’t yet regulated, but adverts and marketing for the products is It means they need to be approved, and have to include prominent risk warnings, covering things like the risk of taking on unaffordable debt, the consequences of missing payments, or any charges.”
Clearer promotions should help people to fully appreciate what they’re getting into, but it’s worth thinking carefully before you take on any extra debt. If you’re borrowing for everyday essentials, then unfortunately, you’re building up bigger problems for the future. And if you’re borrowing to buy something you don’t desperately need today, then it’s worth asking yourself whether you should really be taking the debt on at all.”
