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The US Federal Trade Commission (FTC) has warned businesses engaged in buy now, pay later (BNPL) offerings that they may violate federal rules if they fail to satisfy some basic consumer protection principles.
“If your business offers BNPL payment options as a retailer or BNPL company — or if you play a role in the BNPL ecosystem as a marketer, collector, etc. — remember that basic consumer protection ground rules of the FTC Act apply,” FTC attorney Helen Clark said in a blog post.
When BNPL firms set up a compliance plan, they must keep in mind three key principles, the FTC official stresses.
First, they must ensure that their claims are true for the “typical” consumer. “[I]t’s not enough for some consumers to achieve the advertised result. The claim must be true for the typical consumer,” Clark stresses.
Claims about payment terms and associated fees, such as “zero cost”, may be deceptive and violate the FTC Act if it is available only for a subset of consumers. In addition, businesses offering BNPL services must be able to show that their claims are supported by reliable data.
Under the second principle, businesses should “consider consumer understanding, not just conversion”.
In recent years, the FTC has been paying increasing attention to dark patterns, a practice whereby some businesses make it more difficult for consumers to cancel a purchase or hide relevant information from them to get better conversion rates.
When designing and incorporating user interfaces that offer BNPL or other payment plans to consumers and using aggregate or individualised consumer data to do it, “companies must be careful to view the transaction through consumers’ eyes”, the official warns.
“Avoid dark patterns that negatively affect their understanding of the material terms of the transaction.”
Finally, businesses cannot disclaim liability by pointing to others in the ecosystem.
“Decades of FTC law enforcement establishes that the presence of multiple actors in a transaction is not a shield against liability,” Clark emphasises.
When retailers and BNPL companies offer payment plans to consumers, both may be held liable in case the consumer is deceived or treated unfairly.
For example, in case of a refund request, if the customer does not get a timely refund, any company that made misleading claims about what would happen in those circumstances, as well as anyone involved in delaying refunds, could be liable under the FTC Act.
“Even if the person ultimately gets their money back, the time they spent in the process counts as injury under the FTC Act, particularly if they had to contact a company (or several companies) multiple times or wait weeks for their refund to arrive,” she stresses.
The bottom line, according to the FTC official: “Avoid deceptive or unfair tactics in what you say to consumers, how you convey material information and how you treat them throughout the lifecycle of the transaction.”
The FTC warning comes as the regulatory noose is tightening on participants in the sector.
Two weeks ago, the Consumer Financial Protection Bureau (CFPB), which shares regulatory and enforcement powers with the FTC over consumer-facing financial products, said BNPL has grown to be “a close substitute” for credit cards.
Accordingly, the agency is now working on guidance to ensure BNPL users have the same protections as credit card users.
In 2021, Americans used the top five BNPL firms to facilitate 180m transactions worth $24bn, a tenfold increase from 2019, according to the CFPB.
