The Financial Conduct Authority ("FCA") has published new research which shows there has been a significant increase in the use of Buy-Now-Pay-Later ("BNPL") products.  With this in mind, the FCA has secured changes to potentially unfair and unclear contract terms for unregulated BNPL firms.

The research shows that 27% of UK adults (approximately 14 million people) had used BNPL at least once in the six months prior to January 2023. This is an increase on the 17% who said they had used it in the preceding 12 months in May 2022. The research also found that frequent users of BNPL are more likely to be in financial difficulty. Consumers who have used BNPL more than 10 times were:

• over twice as likely as those who have not used BNPL to also have a high-cost credit product (48% vs. 22%),
• almost twice as likely to have increased the amount of debt on credit products over the last year (51% vs. 27%), and 
• over four times as likely to have missed a payment of a bill or credit commitment in three of the last six months (27% vs. 6%).ay-later (BNPL).

While the FCA does not have regulatory oversight over BNPL products, it says that it wants to protect consumers using financial services where it can.

The FCA has certain 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. In this case, it has used its powers under the Consumer Rights Act 2015 to secure changes to potentially unfair and unclear contract terms in this sector.

The FCA was concerned that the customers of two companies were at risk of harm because of how some of the contract terms were drafted. As a result of the FCA’s continued focus in this area, both firms have voluntarily made their continuous payment authority terms easier to understand - and one company has made terms relating to what happens when a consumer cancels the purchase funded by the loan clearer and fairer.

The FCA reminds all firms to ensure that their consumer contracts comply with all requirements of consumer protection legislation that apply to their business. In particular, firms should ensure that their contract terms comply with the fairness and transparency requirements of the Consumer Rights Act 2015.

Where applicable, firms should take into account regulation 38(1) of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, which states that ‘If a consumer withdraws an offer to enter into a distance or off-premises contract, or cancels such a contract under regulation 29(1), any ancillary contracts are automatically terminated…’.

Firms that charge late payment fees should also review the circumstances in which they have previously charged these fees to consumers for not paying instalments after the loan agreement should have been terminated. The FCA says that it expects firms to provide redress where they find they have charged these late payment fees inappropriately. Firms should respond swiftly to any consumer who contacts them about late fees incurred in circumstances similar to those specified.  

The action by the FCA makes clear that companies active in the financial services sector need to beware of action within the financial regulatory perimeter as well as under the wider consumer protection regime.