UK BNPLs face increased regulatory scrutiny

The United Kingdom's Financial Conduct Authority (FCA) launched a formal investigation into buy now, pay later (BNPL) best practices to protect consumers' financial health and ensure that BNPL promotions are "clear, fair and not misleading," FCA representatives stated.

The FCA has been monitoring BNPL providers and confirmed it will continue to enforce its guidelines after penalizing 4,226 promotions in 2022. Examples of non-compliant promotions include:

• Risk of debt: Promotions that customers cannot afford to repay, which would increase debt loads.
• Severe penalties: Promotions that levy harsh fines on customers who miss a payment deadline.
• Adverse consequences: Promotions that carry harsh penalties capable of severely impact consumer credit scores and financial health.
• Lack of transparency: Promotions that fail to disclose when charges become payable.

Truth in advertising

During an August 2022 roundtable discussion held to discuss upcoming regulations, the FCA urged financial service providers to do more to support borrowers in financial difficulty. The FCA suggested, for example, offering financial literacy programs and debt advisory services.

Sheldon Mills, executive director of Consumers and Competition at the FCA, noted that the current economic climate has placed additional burdens on consumers who are forced to make difficult decisions about their finances and how they pay for goods and services. "Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely and properly informed decisions," he said. "It is vital that adverts are clear, fair and not misleading."

FCA-authorized parties

Mills further clarified BNPL advertising guidelines in an Aug. 19, 2022, letter to the British Retail Consortium. The letter affirmed the FCA's oversight of BNPL and nearly all financial service activities. Before promoting BNPL options to their customers, he noted, merchants must consider if they need to work with FCA-authorized firms that comply with rules to ensure the promotions are fair, ethical and transparent; specific requirements include:

• Transparent disclosures: Promotions must clearly balance potential benefits and relevant risks.
• Accessible language: Promotions must use language that average consumers understand.
• No buried fine print: Promotions must not disguise, omit, diminish or obscure information, statements or warnings.

Having seen promotions that take advantage of gullible consumers, Mills warned BNPL providers not to encourage impulse spending, particularly during an economic downturn.

"We are concerned that [unauthorized] lenders and merchants who promote what is known as exempt/unregulated BNPL agreements through retailers, are not getting their financial promotions approved by an FCA-authorised firm," he wrote. "This may make the promotion illegal, as well as the content of the promotions being not clear or fair and misleading."

Adam Kirby, head of sales at BNPL provider etika, said he was pleased the UK government will be regulating BNPL. "Although etika is already regulated in the UK, we are heartened to see that rules around affordability and creditworthiness checks are likely to be extended to the entire sector," he stated.

Kirby went on to say consumers should not have to wade through complicated, confusing jargon when exercising their finance options, but rather should be empowered to make considered, informed purchases based on personal affordability profiles. He added that etika welcomes any improvement to regulation that protects consumers and businesses and strengthens the health of the sector as a whole.

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