FCA outlines new rules for the buy now, pay later market

The UK’s Financial Conduct Authority (FCA) has released new rules for the buy now, pay later (BNPL) market, to better protect consumers.

With these new rules, the FCA hopes it can save consumers around £40m – £60m a year.

These changes will include the banning firms from charging backdated interest on money that has been repaid by the customer during the BNPL offer period – enforcement will begin 12 November 2019.

Various firms offer BNPL as part of their credit offers, including catalogue credit, store cards, and retailers offering finance at the point of finance.

BNPL schemes offer a promotional period, normally up to 12 months, during which consumers do not have to make payments and are not charged interest. However, if a consumer does not repay the entire amount during the period, interest will be charged from the date of purchase.

This means, consumers who repay part but not all of the amount owed are still charged backdated interest, the FCA said. According to the regulator, over a third of consumers do not repay within the offer period.

Under the rule changes, firms will be able to charge backdated interest, firms will also have to provide better information about BNPL offers. This information must be balanced between risks and benefits of the product.

Finally, firms must give prompts to conusmers to remind them when the offer period is about to end.

FCA executive director of strategy and competition Christopher Woolard said, “Since taking over regulation of consumer credit in 2014, our interventions have made a real difference to consumers, especially to people who use high-cost credit. The changes we are announcing today in the BNPL sector build on these interventions. They are intended to simplify these products and make it easier for consumers to make informed decisions.

“The rules we will be implementing will not only improve the information consumers receive about BNPL offers but will stop firms from charging backdated interest on sums repaid during the offer period. We expect the overall package of measures will save consumers around £40-60 million a year and tackle the harm we identified in this market. As we have shown, we will intervene where we see harms and we remain vigilant in this and other sectors.”