Financial watchdog pushes through changes to “unfair and unclear” buy-now pay-later contracts
The Financial Conduct Authority has pushed through changes to potentially “unfair and unclear” terms in the contracts of four major buy-now pay-later (BNPL) firms as the government prepares for a regulatory clampdown on the sector this year.
The Financial Conduct Authority (FCA) announced today it had secured changes to contracts of BNPL firms Klarna, Clearpay, Laybuy and Openpay which it said were potentially misleading to users.
The watchdog has pushed through the changes to the firms’ terms under the Consumer Rights Act as it waits for the government to introduce more sweeping regulation to the sector this year.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: “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.
The amendments pushed through by the FCA include changes to refund rules that will no longer require shoppers to pay BNPL charge while waiting for confirmation of a refund from a retailer, as well as clearer guidelines for consumers on how to cancel ‘continuous payment authority’.
Mills added that the four BNPL firms have all voluntarily agreed to change their approach and said he hopes the rest of the industry will follow.
Klarna, Clearpay and Laybuy told CityAM they had already implemented the changes, while Clearpay said it had also refunded shoppers who had been wrongly charged late fees.
The news comes as high street lender Barclays today called for more robust regulation of all BNPL products, warning that consumers are taking on debt without the means to pay.
The bank warned that consumers are taking out unregulated BNPL contracts when they’re not in a financially stable position to do so, with new research by finding that a quarter (24 per cent) of BNPL users are concerned about their ability to repay their BNPL bills.
Barclays said a further 31 per cent are overwhelmed by the amount coming out of their account in BNPL bills.
Antony Stephen, CEO of Barclays Partner Finance, said: “It’s essential that the new rules around BNPL regulation are fit for purpose and protect consumers from spiralling debt.
“Our research identifies the shortcomings of unregulated short-term interest-free credit options and highlights that people are still not clear on the repercussions of not making repayments.”
The government is preparing to clampdown on the sector with new regulation this year following a major review by former FCA boss Chris Woolard last year.
Woolard warned of the “urgent” need for regulation in the sector.
Laybuy said today it had worked hard to simplify its contract terms following the FCA’s ruling.
Gary Rohloff, Managing Director and Co-Founder, Laybuy, said: “As a result of the FCA’s assessment, we have worked hard to simplify our contract terms, including providing greater clarity around what happens in the event of an order cancellation or return, so that they are easier to understand, and we will continue to review all of our contracts as part of our commitment to continuous improvement.”