Cost-of-living crisis prompts ‘buy now, pay later’ warning from UK’s FCA

People responsible for misleading ‘buy now, pay later’ adverts could face two years in prison, Britain’s financial watchdog warned on Friday as it told firms offering the loans to stop encouraging “impulse buying” and spell out late repayment fees. As Britain’s cost-of-living crisis worsens, the Financial Conduct Authority has told so-called BNPL firms and the British Retail Consortium that the benefits of the on-the-spot, interest-free, short-term loans were being emphasised in adverts without fair and prominent indications of any relevant risks.

While BNPL loans, which spread repayments on goods such as clothes over a few weeks, are unregulated in Britain, the FCA has powers to intervene in how they are advertised and has forced 4,226 promotions to be withdrawn or amended this year. Money is becoming tighter for many Britons who face soaring energy costs and 40-year high inflation pushing up food prices, making BNPL products an option in a financial squeeze.

“As we face a cost-of-living crisis, consumers are having to make difficult decisions about their finances and how they pay for goods and services,” said Sheldon Mills, the FCA’s executive director of consumers and competition. BNPL lenders make money by taking a cut from what they help retailers sell, with some banks recently joining the rush to serve customers who would normally be unable to get a credit card or would fail strict credit checks.

Some BNPL lenders charge late payment fees, and a failure to pay can also hit consumers’ credit ratings. The FCA, which did not single out any lender on Friday, told BNPL operators Clearpay, Klarna, Laybuy and Openpay in February to change their contracts after identifying potential harm to customers.

It had to use consumer rights law to do so and Britain is to hold a public consultation on draft legislation to introduce BNPL affordability checks. Klarna said on Friday its adverts comply with FCA rules and it makes clear the consequences of missed payments.

“We continue to call for proportionate regulation of the sector so consumers are protected regardless of the provider they choose,” a Klarna spokesperson said. Bain & Co said in a report last year that BNPL transactions were worth 5% of Britain’s e-commerce market, or 6.5 billion pounds, in 2020 with annual growth rates of 60% to 70%.

The FCA said it would use criminal and regulatory enforcement powers against breaches of rules that an FCA-authorised firm must approve all financial promotions.

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