The UK Financial Conduct Authority (FCA) has issued a declaration on February 14 confirming a series of changes to potentially unfair contract terms that had been agreed with four of the largest providers of Buy Now, Pay Later (BNPL) products operating in the UK.
Although BNPL products are not currently regulated by the FCA, the FCA was able to use its investigative powers under the Consumer Rights Act 2015 (CRA) to assess the fairness and transparency of the terms. The FCA was concerned that the terms used by the BNPL firms did not meet the fairness and transparency requirements of the CRA, leading to a potential risk of harm to consumers.
FCA focused on the following:
- Terms specifying what happens if a consumer terminates the contract for purchases financed by a BNPL loan: Consumers returning goods had to continue to pay deposits until the retailer confirmed that the goods had been returned and reimbursed BNPL. The FCA was concerned that consumers would often be forced to pay installments they should not have paid or incur late fees for not paying installments after returning their goods. These loans should have been terminated as soon as the consumers exercised their right to cancel the contract of sale (in accordance with Regulation 38(1) of the Consumer Contracts (Information, Cancellation and Additional Charges) (CCR) Regulations 2013) .
- Modalities allowing companies to terminate and/or suspend a consumer’s account or access to services: The FCA was concerned that these contracts contain terms that could be used to terminate or suspend a consumer’s account for any reason or restrict a customer’s access to their account unreasonably and without notice. This right was deemed too broad by the CAF.
- Conditions of right to compensation: The FCA was concerned that terms relating to a consumer’s right to set-off against monies owed to them by a BNPL business could be used to inappropriately exclude that right.
- Continuous Payment Authorization Terms: When a consumer provides a BNPL company with their debit or credit card details and the necessary consent to withdraw money from their account on a regular basis, this creates ongoing payment authority. The FCA was concerned that the terms were not sufficiently clear on how a consumer could effectively cancel their authorization for continued payment.
The four BNPL companies reviewed through this process have all agreed to change the terms of their consumer contracts to make them fairer and easier for consumers to understand and better reflect how they use the products in the market. practice.
FCA’s Executive Director of Consumers and Competition, Sheldon Mills, said:
Buy-Now Pay-Later has grown exponentially. We do not yet have the power to regulate these companies, but we do have the power to review the terms and conditions of consumer contracts for fairness, and have acted proactively to ensure the BNPL industry adopts standards high in their terms and conditions.
The four BNPL firms we worked with all voluntarily agreed to change their approach. We welcome this and hope that the rest of the industry will now follow suit.
The UK government plans to change the law to bring some of the current forms of unregulated BNPL products into the scope of FCA regulation. The FCA will consult on the rules applicable to this sector after the UK government decides which businesses and activities will be regulated.