FCA secures contract changes for buy-now-pay-later customers

The Financial Conduct Authority (FCA) secures changes to potentially unfair and unclear terms in the contracts of Clearpay, Klarna, Laybuy and Openpay. The FCA was concerned there was a potential risk of harm to consumers as a result of the way some of the firm’s terms were drafted.

The Woolard Review into change and innovation in the unsecured credit market found the use of Buy-Now Pay-Later (BNPL) products nearly quadrupled in 2020 to £2.7 billion. The Government plans to change the law to bring some of the current forms of unregulated buy-now-pay-later products into FCA regulation. 

Even though the type of buy-now-pay-later agreements offered by these firms are not yet regulated, the FCA was able to use the Consumer Rights Act to assess the fairness and transparency of the terms. 

As a result of the FCA’s work, the firms are making terms on issues like contract cancellations and continuous payment authorities fairer and easier to understand. In addition, one of the terms that involved late payment fees has resulted in Clearpay Laybuy, and Openpay agreeing to voluntarily refund customers who have been charged late payment fees in specific circumstances. 

Sheldon Mills, Executive Director of Consumers and Competition at the 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.

'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.'

Notes to editors

  1. Statement outlining the work and guidance for firms.  
  2. Regarding customer refunds:
    • The refunds will be paid where a customer has cancelled their entire order but have been charged a late payment fee for a loan repayment after the loan should have been cancelled. This does not apply where the consumer has returned part of the order because instalments would still be due, although the instalments should be re-adjusted to take into account the refunds in respect of the returned goods. 
    • Customers in these circumstances who think they may have been affected should contact the firm in the first instance.  Customers of other firms with a BNPL loan should contact their firm if they believe similar circumstances apply. 
  3. The FCA has consumer protection powers outside of the Financial Services and Markets Act 2000 regime which can apply to both authorised and unauthorised firms where poor practice is found.  
  4. Buy-now pay-later is a broad term and covers a variety of credit agreements, some of which fall inside the FCA’s perimeter while other types are able to rely on an exclusion. Unregulated BNPL credit agreements rely on the exemption found in Article 60F(2) of the Regulated Activities Order (RAO).  
  5. On 2 February 2021, the FCA published the Woolard Review on change and innovation in the unsecured consumer credit market. The report included a recommendation that unregulated buy-now pay-later products be brought into the regulatory perimeter.  
  6. The FCA will consult on rules for this sector after the Government has decided which firms and activities will be regulated.  
  7. Speech by Nisha Arora, Director of Consumer and Retail Policy, on consumer credit, which has a section on Buy Now Pay Later.
  8. Find out more information about the FCA.