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Key players have agreed to change their buy now, pay later (BNPL) contracts, following intervention from the UK's Financial Conduct Authority (FCA) to protect consumers.
The FCA has used its powers under the Consumer Rights Act 2015 to secure changes to what it deems are “potentially unfair and unclear contract terms” for PayPal and QVC customers.
This builds on work in February 2022, whereby key BNPL firms Klarna, Openpay, Clearpay and Laybuy voluntarily agreed to change the terms of their contracts.
In this instance, the FCA was concerned that PayPal and QVC customers were at risk of harm because of how some of the contract terms were drafted.
Both firms have now amended this, and PayPal has also made terms relating to what happens when a consumer cancels the purchase funded by the BNPL loan clearer and fairer.
“While the FCA does not have regulatory oversight over BNPL products, it is determined to protect consumers using financial services where it can,” the FCA said.
The FCA has been an advocate of regulating BNPL for some time, although lacks the regulatory tools until the UK government brings forward amendments to the Consumer Credit Act.
In notes from a July meeting between HM Treasury (HMT) and the FCA, it is revealed that the CEO of the FCA, Nikhil Rathi, noted “the ongoing work on the timing and approach of bringing Buy-Now Pay-Later activities into the perimeter”.
Here, HMT said that it is still considering responses to the consultation, which closed in April 2023, but will set out next steps shortly.
BNPL use continues to grow
BNPL use is on the up, as revealed by the FCA’s Financial Lives survey.
Data sourced from this shows that 27 percent of UK adults (approximately 14m) have used BNPL at least once in the six months prior to January 2023.
This is up from 17 percent who said they had used it in the preceding 12 months in May 2022.
The research also found that frequent users of BNPL are more likely to be in financial difficulty.
Consumers who have used BNPL more than ten times were more than twice as likely as those who have not used BNPL to also have a high-cost credit product, almost twice as likely to have increased the amount of debt on credit products over the last year, and more than four times as likely to have missed a payment of a bill or credit commitment in three of the last six months.
“Our research shows a significant increase in the use of BNPL over the past year,” said Sheldon Mills, executive director, consumers and competition at the FCA.
“When used appropriately, the product provides valuable benefits, but we want to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections and are given sufficient information.”
