Buy now, pay later firms agree to make rules fairer for customers

Some buy now, pay later firms have agreed to change terms in their customer contracts to make them fairer and easier to understand.

The Financial Conduct Authority (FCA) said it was concerned there was a potential risk of harm to consumers as a result of the way some firms’ terms had been drafted.

The four firms involved, Clearpay, Klarna, Laybuy and Openpay, have fully co-operated, the regulator said.

In addition, Clearpay, Laybuy, and Openpay have agreed to voluntarily refund customers who have been charged late payment fees in specific circumstances, it added.

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 firms’ terms.

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 (buy now, pay later) 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.”

The FCA said the way some terms had been drafted, for example, lead to circumstances where customers may have either continued paying instalments where they did not need to or were charged late payment fees after a loan agreement should have been terminated.

This may have happened due to a delay in the retailer letting the BNPL firm know that the consumer had cancelled their online sales contract.

The FCA was also concerned that terms, as previously drafted, could be used to terminate or suspend a customer’s account for any reason without notice.

The use of BNPL products nearly quadrupled in 2020, amounting to £2.7 billion.

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We have acted to ensure they adopt high standards