FCA announces changes to 'unfair' BNPL contracts

The UK’s financial watchdog has announced changes to potentially “unfair and unclear” terms in the Buy Now, Pay Later (BNPL) contracts of Clearpay, Klarna, Laybuy, and Openpay.

The move comes as Barclays calls for more robust regulation of BNPL after its research suggested a lack of consistent affordability assessments among short term interest-free credit providers has "led shoppers to take on more debt than they can afford to repay”.

The Financial Conduct Authority (FCA) said that it was concerned about a potential risk of harm to consumers because of the way some of the companies’ terms were drafted.

Although the BNPL market does not currently fall under FCA regulation, the authority was able to use the Consumer Rights Act to “assess the fairness and transparency of the terms”.

The regulator said that, as a result, 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.

The government currently has plans to change the law to bring some BNPL products under the body’s remit.

“'Buy-Now Pay-Later has grown exponentially,” said Sheldon Mills, executive director of consumers and competition at the FCA. “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.'”

A recent study by Barclays show that 24 per cent of BNPL users are concerned about their ability to repay their BNPL bills. This figure rises to over a third - 34 per cent - among 18–34-year-olds.

A further 31 per cent said they are overwhelmed by the amount coming out of their account in BNPL bills.

“It’s essential that the new rules around BNPL regulation are fit for purpose and protect consumers from spiralling debt," said Antony Stephen, chief executive of Barclays Partner Finance. "Our research identifies the shortcomings of unregulated short-term interest-free credit options and highlights that people are still not clear on the repercussions of not making repayments.

"Barclays believes all consumer credit products should be subject to the same level of regulation, to avoid an unnecessary two-tier regulatory framework that goes against the best interests of consumers.”

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