BNPL firms told to change ‘unclear’ terms by watchdog ahead of crackdown

BNPL terms FCA Image credit: Ascannio / Shutterstock

The UK’s financial watchdog has forced fintech companies Klarna, Clearpay, Laybuy and Openpay to change “potentially unfair and unclear” terms in their buy-now-pay-later (BNPL) products.

The Financial Conduct Authority (FCA) said it identified areas of “potential harm to consumers”. The regulator added that the four BNPL firms “fully cooperated” to address its concerns.

Some of the firms voluntarily provided refunds to customers who were “inappropriately” charged late payment fees, the FCA said.

As part of the agreement, terms for consumers returning goods purchased with BNPL products have now been made clearer to avoid unnecessary repayments.

Firms have also agreed to not use broad terms that could allow them to terminate or suspend a consumer’s account without notice.

The FCA also raised concerns that previous BNPL terms could prevent a consumer from deducting money they are owed by a retailer from their repayment.

The four BNPL companies have also made it clearer for consumers to cancel a continuous payment authority, a mechanism used to collect regular payments.

The changes to BNPL terms come ahead of a wider UK crackdown on the largely unregulated interest-free credit sector.

While not all BNPL products are regulated by the FCA, the watchdog stepped in using the Consumer Rights Act to enforce the changes.

“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,” said Sheldon Mills, executive director of consumers and competition at the FCA.

“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.”

BNPL use soars as regulation looms

In 2020, the use of BNPL products tripled to £2.7bn. An estimated 15 million adults in the UK are using BNPL services, an increase of more than two million since the start of 2021.

The UK government is currently reviewing regulatory options for the country’s BNPL sector. It follows a government-led report that raised concerns that BNPL products increased the risk of consumers getting into debt.

Despite the looming crackdown, investors continue to pour money into companies offering BNPL services. In November, Berlin-based Billie raised $100m to expand into the UK while Australian BNPL firm Humm entered the UK the following month.

The FCA said that companies operating in the BNPL space should ensure all consumer contracts comply with “all the requirements of consumer protection legislation that apply to their business”.

Klarna, Clearpay, Laybuy and Openpay told UKTN that they welcomed the FCA’s changes to BNPL terms.

“We continuously review our Ts&Cs including working with Fairer Finance, to ensure that we are communicating in the most clear, fair and transparent way,” said Alex Marsh, head of Klarna UK. “We have never received a customer complaint specifically related to these Ts&Cs but are always open to ways in which they can be improved.”

Gary Rohloff, managing director and co-founder of Laybuy, told UKTN that his company was “absolutely committed to ensuring our terms and conditions are not only fair and transparent, but also easy to understand for our customers” and that it has “worked hard to simplify our contract terms”.

A spokesperson for Clearpay told UKTN: Clearpay upholds high standards in how we communicate to our customers and we constantly review our product communications to ensure that we are as transparent as possible.

“Following recent discussions with the FCA, there is a very small group of customers who may have incorrectly been charged a late fee because we were not notified of them returning a purchase within a certain time frame. We will automatically refund impacted customers that we are able to identify and have a dedicated page on our website for customers who may be impacted.”

A spokesperson for Openpay said: “Openpay has always championed transparency within the BNPL iIndustry, and we welcome guidance from the FCA on our T&Cs to ensure consumer protection and responsible purchasing.”

On Monday Barclays Bank Partner Finance CEO Antony Stephen called for “more consistency” in BNPL regulation and a common framework that applies to all consumer credit.

“It’s essential that the new rules around BNPL regulation are fit for purpose and protect consumers from spiralling debt,” Stephen said.