FCA sounds alarm over misleading adverts by “buy now, pay later” firms
The UK Financial Conduct Authority has sounded the alarm to businesses that offer “buy now, pay later” products that stronger safeguards are needed to protect the millions of shoppers.
Firms such as Klarna, Clearpay and Laybuy are publishing unfair and misleading promotions, including posts by social media influencers, that break laws by not warning of risks such as taking on unaffordable debt, the watchdog said.
BNPL providers usually tie up with retailers to offer consumers the option to pay in installments without charging interest if payments are made on time. Other perks include no late fees and high credit limits.
In the letter to BNPL providers, the watchdog confirmed that it is conducting a review into buy now, pay later firms and would monitor compliance and take action if ads continued to break rules.
The statement highlights the growing concerns around this form of unregulated interest-free credit, which has enjoyed explosive growth during the coronavirus pandemic. Although the FCA does not yet regulate BNPL products it has been proactively addressing concerns about potential harms to consumers.
BNPL deals allow customers to stagger or split payments for their purchases with no interest or fees. However, these firms expose clients to many financial risks if they fail to pay back on time. The consequences of missed payments include, among other things, paying hefty late fees, black marks on their credit report or having their case referred to a debt collector.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: ‘As we face a cost-of-living crisis, consumers are having to make difficult decisions about their finances and how they pay for goods and services. Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely and properly informed decisions. It is vital that adverts are clear, fair and not misleading.’
In 2020, the UK’s advertising watchdog banned an Instagram influencer campaign by Klarna on the grounds that they “irresponsibly encouraged the use of credit to improve people’s mood.” The agency also introduced guidelines requiring all providers to make clear that BNPL, which proved popular among millennials and Gen Z shoppers, is a type of debt.