FCA makes buy now, pay later schemes redraft terms

UK regulators have driven buy now, pay later services to redraft terms that risked harming consumers as concerns mount over the rapidly growing payment method.

The UK market for such schemes quadrupled to £2.7bn in 2020, the Woolard review commissioned by the Financial Conduct Authority revealed on Monday. A separate academic analysis estimated the market may have increased in value last year to £5.7bn.

The sector lacks specific regulation so the FCA used the broader legislation of the Consumer Rights Act to assess the fairness and transparency of terms used by Klarna, Clearpay, Laybuy and Openpay, which co-operated with its work.

The FCA proposed changing terms that could be used to terminate, suspend or restrict access to a customer’s account for any reason without notice.

Others covered cancellation policy. Under the previous terms, consumers had to pay instalments until BNPL services had either received a refund or confirmation from merchants that goods had been received.

The UK Treasury launched its consultation in October. The FCA said in August that it planned to consult on the sector after the government review was complete.

Consumer groups, which have long worried about the impact of BNPL, welcomed the decision. “Our real fear is that many people don’t understand what they are signing up to, or the consequences if things go wrong,” said Matthew Upton, director of policy at Citizens Advice.

A separate analysis of the sector by US and UK academics has raised questions around the relative benefits of such schemes as opposed to other forms of unsecured lending. It estimated that between 40 and 50 per cent of all BNPL in the UK was charged on credit cards.

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