Buy-now-pay-later firms to make rules fairer, says regulator

Buy-now-pay-later firms Klarna, Clearpay, Laybuy and Openpay are to make their terms and conditions fairer and clearer amid concern customers could be at risk.

The financial regulator said it wanted to protect consumers at time when demand for these services is soaring.

Three of the firms will also refund people who were charged late payment fees in specific circumstances.

The FCA said it hoped the rest of the industry will now follow suit.

Buy-now-pay-later (BNPL) firms allow people to manage their shopping, either by postponing their bill for a short while, or splitting it into more manageable chunks over time interest free.

According to BBC analysis, more than 17 million people had used BNPL services in the UK as of November.

But critics have said users too easily end up in debt and tougher rules are needed for the industry, which is still unregulated.

Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority (FCA), said: "Buy now pay later has grown exponentially.

"We do not yet have powers to regulate these firms, but we do have powers to review the terms and conditions of consumer contracts for fairness, and have acted proactively to ensure that the BNPL industry adopts high standards in their terms and conditions."

Following a review, the FCA said the way some terms and conditions had been drafted led to circumstances where customers may have either continued paying instalments when they did not need to, or were charged late payment fees after a loan agreement should have ended.

The regulator was also concerned that terms could be used to terminate or suspend a customer's account for any reason without notice, or in an unreasonable way.

Furthermore, it said some BNPL contracts had not explained clearly enough how a customer could cancel a recurring payment agreement set up with a provider.

In response, Klarna, Clearpay, Laybuy and Openpay have all voluntarily agreed to change their approach, the FCA said.

In addition, Clearpay, Laybuy and Openpay will voluntarily refund customers who have been charged late payment fees in certain circumstances.

According to new research from Barclays, nearly a quarter of BNPL users are concerned about their ability to repay their BNPL bills.

This figure rises to over a third of 18 to 34-year-olds.

Matthew Upton, director of policy at Citizens Advice, welcomed the changes, saying they would "set the tone" ahead of long awaited government plans to regulate BNPL.

But debt charity StepChange said they were "no substitute", and urged ministers to ensure BNPL was held to the same standards as other forms of consumer credit.