Credit, Collections & Insolvency News
The Financial Conduct Authority (FCA) has announced that it has secured changes to potentially unfair and unclear terms in the contracts of buy now pay later (BNPL) providers Clearpay, Klarna, Laybuy and Openpay.
The FCA says that it was concerned there was a potential risk of harm to consumers as a result of the way some of the firm’s terms were drafted.
The Woolard Review into change and innovation in the unsecured credit market found the use of Buy-Now Pay-Later (BNPL) products nearly quadrupled in 2020 to £2.7 billion. The Government plans to change the law to bring some of the current forms of unregulated buy-now-pay-later products into FCA regulation.
Even though the type of buy-now-pay-later agreements offered by these firms are not yet regulated, the FCA was able to use the Consumer Rights Act to assess the fairness and transparency of the terms.
As a result of the FCA’s work, the firms are making terms on issues like contract cancellations and continuous payment authorities fairer and easier to understand. In addition, one of the terms that involved late payment fees has resulted in Clearpay Laybuy, and Openpay agreeing to voluntarily refund customers who have been charged late payment fees in specific circumstances.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said “Buy-Now Pay-Later has grown exponentially. 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.”
“The four BNPL firms we have worked with have all voluntarily agreed to change their approach. We welcome this and hope that the rest of the industry will now follow.”
Richard Lane, Director of External Affairs at StepChange Debt Charity, said “We’re pleased to see the FCA being pro-active in the buy now, pay later sector, using its existing powers to drive improvements in advance of the implementation of Government proposals to bring BNPL into the consumer credit regulatory framework and within the FCA conduct rulebook.”
“The four areas in which the FCA has been able to work with firms to drive contractual improvement are welcome, but not a substitute for regulation that will ensure the promotion of BNPL and the treatment of customers are fully up to the standards expected of other forms of consumer credit.”
Joanna Elson CBE, Chief Executive of the Money Advice Trust said “This new intervention from the FCA on ‘buy now, pay later’ is welcome and shows again that the regulator is prepared to take action to protect consumers.”
“These voluntary changes should not distract, however, from the need for full regulation of ‘Buy now, pay later’ products as soon as possible. As the popularity of these products continue to grow, it is crucial that they are held to the same standards as other forms of credit, including properly assessing whether customers can afford to repay in the first place.
Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “Buy-Now-Pay-Later borrowers could be due a bumper payout, after the FCA found some of the rules around late payments fees were unfair. Lenders will also make their contracts fairer and clearer. It’s great news for anyone who was unfairly charged these fees, but it’s a fraction of what the FCA could achieve if it wasn’t having to reach across the divide of regulation, and work with a couple of blunt instruments while the enormous potential of the full toolbox remains locked.”
“While it’s waiting to regulate the industry fully later this year, the FCA used the Consumer Rights Act to assess whether the contracts issued by four major players were fair and clear. Three companies: Clearpay, Laybuy and Openpay, will refund some borrowers after the FCA discovered late payment fee rules on cancelled orders were unfair.”