BNPL major players have their first taste of intensive regulation to come

It is high time the mushrooming BNPL industry is brought into regulation and subject to the same rules as the traditional credit industry, says interactive investor's Myron Jobson.

• The FCA has secured changes to potentially unfair and unclear terms in the contracts of buy now, pay later (BNPL) companies 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.
• 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. 

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The major BNPL players have had their first taste of what life will be like under FCA regulation – and it has already had a pounds and pence cost for these companies, having chosen to voluntarily refund customers who have been charged late payment fees in specific circumstances. 

“It is high time that the mushrooming BNPL industry is brought into regulation and be subject to the same rules as the traditional credit industry, requiring things like affordability checks and making sure customers are treated fairly. Many shoppers view BNPL as different from credit cards and are unaware of the cold hard fact that BNPL purchases are a form of credit that could tarnish their credit score if they miss payments.

“There's no disputing the momentum behind BNPL schemes which has grown by filling a need for cheap and more convenient form of credit and exploiting some gaps in regulation. It is difficult to shop online without seeing a BNPL option and retailers are more than happy to facilitate these schemes with the hope of seeing fewer abandoned shopping carts and bigger baskets.

“Many BNPL services don’t subject customers to a 'hard' credit check that can leave a footprint on their credit report. As such, a key issue with BNPL is it may attract people who are already in the red and may be struggling to pay existing bills. So, it is likely that a large number of people making BNPL repayments are also racking up credit card debt.

“The fact that everyday essentials such as groceries can be purchased through some BNPL schemes is a shortcut to unmanageable debt.”