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Michael Brown

Acting Editor
Published: 14/02/2022
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Pressure builds for a more regulated Buy Now Pay Later (BNPL) market after the Financial Conduct Authority (FCA) forced providers to change their terms and conditions.

Clearpay, Klarna, Laybuy and Openpay have all changed terms in their contracts after the FCA felt there was a potential risk of harm to consumers.

“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,” said Sheldon Mills, Executive Director of Consumers and Competition at the FCA.

As a result, Clearpay, Laybuy, and Openpay have agreed to voluntarily refund customers who have been charged late payment fees in specific circumstances.

Although BNPL products are not regulated yet, the FCA was able to use the Consumer Rights Act to enforce these changes. 

FCA’s Woolard Review

A need for transformation was stated in the FCA’s Woolard Review, which investigated change and innovation in the unsecured credit market.

“An improved unsecured credit market is possible in which regulation responds rapidly to new potential harms,” the report concluded.

Although the BNPL market makes up 1% of the total credit market, the use of BNPL products nearly quadrupled in 2020 to £2.7 billion.

“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,” said Mills.

Barclay’s Bank research

“It’s essential that the new rules around BNPL regulation are fit for purpose and protect consumers from spiralling debt,” said Antony Stephen, CEO of Barclays Partner Finance.

Recent research conducted by Barclays Bank reveals that approximately 24% of BNPL users were concerned about their ability to repay their debt. Furthermore, this figure rose to 34% among 18 to 34-year-olds. 

“Our research identifies the shortcomings of unregulated short-term interest-free credit options and highlights that people are still not clear on the repercussions of not making repayments,” said Stephen.

The report also stated that the average user was paying off £293 in BNPL loans, while 23% of 18–34-year-old respondents had to reduce their essential spending to keep up with their payments.

This research was conducted among 2,000 British consumers who used BNPL products.

What is a BNPL product?

A BNPL product, as the name suggests, allows a consumer to buy their goods through a line of credit. A provider, such as Klarna, Laybuy and Openpay, will pay the retailer for your purchase while you stay in their debt.

The terms of this agreement will differ according to the provider, but most often you will be allowed to pay for your product through instalments or after a set period. Generally, if you make your payments within the delay period, you will not incur any interest on your purchase.

However, consumers should be wary about letting various BNPL payments add up. This will increase your debt and may make it unmanageable. In addition, if you miss any of your payments you will face a penalty fee.

Are there alternatives?

Depending on your own finances and how quickly you expect to repay your credit, applying for an interest free credit card may be a better option for you.

If you would like to compare unsecured loan rates, you can use our loans chart here. Otherwise, if you would like to investigate the different types of interest-free credit cards, click here.

Are there alternatives?

Of the best options available at the time of writing, M&S Bank is offering a Credit Card Shopping Plus offer interest-free for 23 months.

Meanwhile, HSBC’s Purchase Plus Credit Card’s introductory purchase period remains a little lower at 22 months.


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