The Financial Conduct Authority (FCA) has issued a press release last week in which it warns "Buy Now, Pay Later" (BNPL) firms to be take care when they advertise their services. The FCA emphasises that although some agreements are unregulated, the financial promotions of all BNPL products must comply with the financial promotion rules.
A financial promotion is an invitation or inducement to enter into an agreement. A financial promotion for BNPL is any form of communication made across any media in the course of business, that invites a consumer to purchase a good or service by entering a BNPL agreement. This includes, for example, posters in shop windows, paid for Google ads, and posts made by influencers on social media.
Authorised firms selling unregulated or exempt BNPL products must comply with the relevant rules unless an exemption applies. This includes requirements for their BNPL financial promotions to be clear, fair and not misleading. They must also make sure that the appropriate risk warnings are given such as:
- the risk of taking on debt that customers cannot afford to repay;
- the consequences of missed payments;
- any other adverse consequences such as the impact on the customer's credit file ; and
- information about when charges become payable.
The FCA is concerned consumers could be misled if BNPL financial promotions do not comply and has seen financial adverts on websites and social media, including posts by social media influencers, which may breach FCA rules. It says that it is proactively monitoring the market and that this year, its involvement has led to over 4,000 promotions being changed or withdrawn.
The issue of influencer advertising is wider than BNPL, and both the self-regulatory Committee of Advertising Practice (CAP) and the statutory consumer protection regulatory, the Competition and Markets Authority (CMA) have issued guidance on it. The CAP guidance makes clear influencers must comply with the CAP Code in its entirety and that posts must not be misleading. CAP also issued guidance to help BNPL providers in December 2020 with the main aim of ensuring consumers understand BNPL services are a form of credit, following an upheld complaint from Stella Creasy MP by CAP's sister body, the Advertising Standards Authority (ASA).
It is striking that the ASA and CAP were active in relation to this issue more than 18 months ago - and it is another illustration that the self-regulatory is often far quicker in addressing concerns than the statutory regulator. We will have to see whether the government will bow to the demands of campaigners like Stella Creasy for tighter regulation of the sector, particularly in light of the growing cost of living crisis. However, one line in the FCA is press release does suggest that this may be a holding measure pending further legislation: "Although the FCA does not yet regulate BNPL products it has been proactively addressing concerns about potential harms to consumers." The key word being "yet".
The FCA is continuing to engage with BNPL providers and are proactively monitoring the market to ensure expectations are met