New FCA buy-now-pay-later terms result in customer refunds

New terms on buy-now-pay-later (BNPL) finance products introduced by the Financial Conduct Authority (FCA) have resulted in late payment fees being refunded to customers.

A rise in the popularity of BNPL has seen offerings introduced into car retail’s aftersales sector, with providers aiming to improve the accessibility and affordability of service and maintenance work at the point of sale.

Although such agreements are not yet regulated, the FCA has now used the Consumer Rights Act to assess the fairness and transparency of the terms, leading to changes to what is described as the “potentially unfair and unclear terms” in the contracts of Clearpay, Klarna, Laybuy and Openpay.

The FCA said that the firms are making terms on issues like contract cancellations and continuous payment authorities fairer and easier to understand as a result.

In addition, one of the terms that involved late payment fees has resulted in Clearpay Laybuy, and Openpay agreeing to voluntarily refund customers who have been charged late payment fees in certain circumstances, it said.

The FCA’s executive director of consumers and competition, Sheldon Mills, 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, and have acted proactively to ensure that the BNPL industry adopts high standards in their terms and conditions.”

The Woolard Review into change and innovation in the unsecured credit market found the BNPL market had nearly quadrupled in scale during 2020, reaching a worth of £2.7bn.

The Government now plans to change the law to bring some of the current forms of unregulated buy-now-pay-later products into FCA regulation.

Mills added: “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.”

The biggest FCA change directly affecting car retail in 2022 will be the introduction of a new Consumer Duty.

December’s publication of the FCA’s second consultation on its new all-encompassing Consumer Duty protocols and the automotive retail sector’s new commission disclosure regulations were the subject of finance themed features in the January edition of AM magazine.

In one of the finance themed features AM spoke with Alphera director Preston Rogers (PR); managing director of Close Brothers Motor Finance Seán Kemple (SK); Oodle managing director Philip Williams (PW); and NFDA chief executive Sue Robinson (SR) to determine the impact of the motor finance sector’s key changes on trading in 2022.