FCA scrutiny of buy-now-pay-later contracts prompts action

The UK's financial watchdog has moved to protect those struggling with the cost of living by requesting buy-now-pay-later (BNPL) firms ensure their contract terms are fair and clear.  

The FCA’s Financial Lives research, shows that 14 million UK adults had used BNPL at least once in the six months prior to January 2023. - up 17% from the 12 months preceding May 2022.    

The research also found that frequent users of BNPL are more likely to be in financial difficulty. Consumers who have used BNPL more than 10 times in the last 12 months were over twice as likely as those who have not used BNPL to also have a high-cost credit product (48% vs. 22%); almost twice as likely to have increased the amount of debt on credit products over the last year (51% vs. 27%), and over four times as likely to have missed a payment of a bill or credit commitment in three of the last six months (27% vs. 6%). 

The FCA said it had used its powers under the Consumer Rights Act 2015 to secure changes to potentially unfair and unclear contract terms in this sector, building on the FCA’s work with other BNPL providers last year and the guidance that was issued at the time. 

The FCA was concerned that PayPal and QVC customers were at risk of harm because of how some of the contract terms were drafted. Both firms have now voluntarily made their continuous payment authority terms easier to understand - and PayPal has made terms relating to what happens when a consumer cancels the purchase funded by the loan clearer and fairer.

Sheldon Mills, executive director of consumers and competition at the FCA, said:  “Our research shows a significant increase in the use of BNPL over the past year. When used appropriately, the product provides valuable benefits, but we want to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections and are given sufficient information.” 

While the FCA does not have regulatory oversight over BNPL products, it said it is determined to protect consumers using financial services where it can.