Buy Now, Pay Later change of terms

With the use of ‘Buy Now, Pay Later’ exploding over the past 24 months, the Financial Conduct Authority (FCA) has finally scrutinised the consumer terms provided. Their findings discovered that the terms were ‘potentially unfair and unclear’, so they used consumer law to enforce changes to make it ‘fairer and easier to understand’.

The major players, such as Klarna, Laybuy, Clearpay and Openpay, have agreed to the changes — which focus on the cancellation and continuous payment authority terms. They’ve also agreed to refund some late payment fees that were wrongly charged — a great result for the FCA.

These services are mainly offered at the point of sale and online, allowing shoppers to pay in instalments over weeks or months. Unlike short term loan lenders or credit cards/store cards, Buy Now, Pay Later lenders typically do not charge interest on loans, meaning they avoid current regulations. They make their money by charging the retailers for the service.

Klarna and Laybuy said they backed calls for the sector to be regulated directly by the FCA rather than more general consumer laws in a bid to protect their reputation as consumer champions. This may also have been to protect their valuations, as Klarna was recently valued at $45bn.

Critics such as the Labour MP for Walthamstow, Stella Creasy, described the FCA as using a ‘whack-a-mole approach’ for targeting buy now pay later companies.

She said these new ‘legal loansharking’ firms are encouraging borrowing, ultimately leading to a debt cycle.

However, the FCA were less bleak in its assessment.

Sheldon Mills, the FCAs Exec Director of Consumers and Competition, 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. We have acted proactively to ensure that the industry adopts high standards.”

He added that he hoped the rest of the industry would follow the four firms’ voluntary changes to conditions.

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