Finance watchdog warning over ‘ buy now, pay later’ ads

THE City watchdog yesterday fired a warning shot at the booming ‘buy now, pay later’ industry amid concerns over misleading adverts.

Lenders such as Klarna and rival firms frequently use social media to promote services which allow borrowers to split the cost of payments without paying interest.

But the financial Conduct Authority said they could face criminal action if they fail to make the risks of taking on debt clear to customers.

These can include hefty late payment fees or unpaid balances being passed on to debt collectors. Borrowers can also be hit with black marks on credit reports, which may impact their ability to take out a mortgage in the future.

The ‘ buy now, pay later’ (BNPL) industry has boomed as the cost of living has soared, with one in 12 households using it to pay for essentials, according to Citizens Advice.

Last week supermarket giant Iceland launched interest-free loans of up to £100 to help shoppers cover the cost of groceries.

But consumer experts warned firms are encouraging cashstrapped customers to spend more than they can afford.

Myron Jobson, of investment service Interactive Investor, said: ‘Buy now, pay later adverts can be as clear as mud.

‘The worry is an increasing number of people are using such schemes without having a clear understanding of the key considerations.’ The BNPL industry is unregulated despite the watchdog announcing plans to bring it under its remit more than 18 months ago.

Tougher rules are not expected to be enforced until 2024.

However, the fCA says it still has power to fine lenders over misleading adverts and launch criminal prosecutions if promotions breach rules.

Sheldon Mills, of the fCA, said: ‘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.’

So far this year, the fCA has banned 4,226 promotions across all financial products.

A Klarna spokesman said that its advertising promotes responsible spending.