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On 31 October 2023, the Financial Conduct Authority (FCA) published a Research Note which explored the use of Buy Now Pay Later (BNPL) credit by consumers in the UK, which is reflective of increased usage and, resultantly, regulatory concern over this form of credit arrangement.

What is Buy Now Pay Later?

BNPL is now a common form of payment option offered by companies to allow consumers to split the cost of purchases over an extended period, generally with no interest for fees being charged. BNPL can be beneficial to consumers who can spread payments for products to budget more effectively.

This type of credit arrangement is in its infancy and does not constitute a regulated activity under the Financial Services and Markets Act 2000. It is therefore not currently regulated by the FCA. However, given its increasing usage by consumers through companies such as PayPal, Klarna and other providers, the UK Government has been consulting on draft legislation to regulate this activity and ensure the protection of consumers.

FCA Action

Although BNPL is not currently regulated by the FCA, the FCA has powers under the Consumer Rights Act 2015 (CRA) to assess and challenge the fairness and transparency of an organisation’s terms and conditions. The FCA used these powers with PayPal and QVC, whose terms were, according to the FCA, potentially unfair and unclear – this resulted in each company voluntarily changing its terms and conditions.

Following this action, the FCA has reminded all firms to ensure that their consumer contracts must comply with all requirements of consumer protection that apply to their business. Therefore, whether you are a BNPL provider, or a merchant offering BNPL as a form of payment via a third-party provider, you must ensure that your terms and conditions and commercial practices comply with the law.

What are my current obligations?

In short, consumer laws require your consumer terms and conditions to be fair, clear, transparent and not misleading. This means that you need to take care with the words and phrases you use, as well as ensuring that your terms do not tip the balance significantly against the consumer’s favour.

For example, following the FCA’s exercise of its powers against PayPal, PayPal were required to make its terms around the consequences of a consumer cancelling a purchase funded by the loan clearer and fairer.

If you do not comply with your obligations your organisation could face several consequences, including regulatory intervention and fines, consumer complaints, legal action and reputational damage. It is therefore essential that your organisation gets its terms right.

Next steps

If you offer goods or services to consumers and you would like to discuss the content of this article or any other concerns you may have, please Book a 30-minute FREE Consult or fill in the form below requesting a call back from Haroon Younis, Partner & Head of Commercial.

Please note that this information is for general guidance only and should not substitute professional legal advice. If you have specific concerns, we recommend consulting one of our legal experts.


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