FCA starts to push for buy now, pay later improvements

Even though the industry isn’t yet under the FCA’s supervision, it’s already making changes.

While buy now, pay later remains unregulated—likely until the second half of 2022 at the earliest—that isn’t stopping the Financial Conduct Authority from starting to make improvements.

This week the regulator says it has reached agreement with Klarna, Clearpay, Laybuy and Openpay to rewrite their terms and conditions, bringing them in line with the existing Consumer Rights Act.

It wrote that “we identified potential harm to consumers” and took steps “in line with our strategy to act as an assertive regulator, by being proactive at the boundaries of the FCA perimeter where appropriate.”

Specifically, the changes include clearer rules for when a customer returns an item funded by a pay later loan, a tighter definition of when a customer’s pay later account can be suspended, and a better explanation of how a customer can cancel their continuous payment authority with a pay later firm.

In some cases ClearPay, Laybuy and Openpay have also voluntarily agreed to refund customers that had been wrongly charged late payment fees for a returned item.

“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 Sheldon Mills, executive director of consumers and competition at the FCA.

“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.”

Obviously, these changes are merely a stopgap measure until the FCA is given full oversight of the buy now pay later industry, however they are a welcome step to improve the customer experience.

David Brear, CEO of fintech consultancy 11:FS said the move from pay later providers "shows an industry maturing - and coming to terms with the fact that they will no doubt shortly fall under the regulator's remit."

Indeed, as AltFi has covered many times, the entire financial industry, including those providers of pay later services, are in broad agreement that the sector should be regulated.

However, we still await the results of the Treasury’s consultation on such regulation, and the subsequent FCA consultation, both of which will precede any legislative changes towards the latter half of 2022.