Buy now, pay later companies making contract terms fairer and easier to understand

Some buy now, pay later companies have agreed to change the terms of their customer contracts to make them fairer and easier to understand.

The Financial Conduct Authority (FCA) said it was concerned there was a potential risk of harm to consumers because of the way some companies’ terms had been drafted.

The four companies involved, Clearpay, Klarna, Laybuy and Openpay, cooperated fully, the regulator said.

In addition, Clearpay, Laybuy and Openpay have agreed to voluntarily reimburse customers who have been charged late payment fees under specific circumstances, he added.

Even though the type of “buy now, pay later” deals offered by these companies are not yet regulated, the FCA was able to use the Consumer Rights Act to assess the fairness and transparency of the companies’ terms. .

Sheldon Mills, Executive Director of Consumers and Competition at FCA, 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 greater fairness, and have acted proactively to ensure that the BNPL industry (buy pay now, pay later) embraces high standards of fairness. their terms and conditions.

“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 suit.

The FCA said the way some terms were drafted, for example, led to circumstances where customers could either keep paying installments when they didn’t need them or be charged late fees. payment after the termination of a loan agreement.

This may have happened due to a delay in notifying BNPL by the retailer that the consumer had terminated their online sales contract.

The FCA was also concerned that the terms, as previously drafted, could be used to terminate or suspend a customer’s account for any reason without notice and unreasonably restrict or terminate access to their account.

He was also concerned that some terms did not specify how a customer could cancel a Continuing Payments Authority (CPA), which is created when someone gives a business their payment card details and consents to the company regularly withdraws money from his account.

In response, the four companies agreed to change their terms to address the FCA’s concerns.

Where appropriate, this includes modifying their cancellation policies to better reflect how they are applied in practice.

Clearpay, Laybuy and Openpay have also offered to voluntarily reimburse consumers who have in the past been inappropriately charged a fixed late payment fee for installments declared due after their entire purchase was cancelled. online from the retailer.

Klarna does not charge late payment fees, so no such refund is due, the FCA said.

When a consumer has returned some but not all of the goods that made up the order, no reimbursement of the fixed late payment penalties will be made, he added.

The Woolard review previously found that the use of buy now, pay later products nearly quadrupled in 2020, to £2.7 billion.

The UK government plans to change the law to incorporate certain forms of unregulated buy now, pay later products into FCA regulations.

Concerns have been raised that people can quickly accumulate relatively large debts by using BNPL as an option at online checkouts.

Barclays released research on Monday which indicates that almost a quarter (24%) of BNPL users are concerned about their ability to repay their BNPL bills.

This figure rises to more than a third (34%) of 18 to 34 year olds.

More than a third (35%) of BNPL users said they chose to pay by this method because they did not have enough funds in their checking or savings account to pay for their purchase, and 10% said that it was because their credit card applications had been rejected.

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