14th June 2019

FCA publishes final rules on Buy-Now, Pay-Later products

The Financial Conduct Authority (FCA) has confirmed it will introduce new rules in the Buy-Now, Pay-Later (BNPL) market, saving consumers around £40-60m a year. The changes, which include banning firms from charging back-dated interest on money that has been repaid by the consumer during the BNPL offer period, will be in force by 12 November, 2019.

The measures are designed to reduce the harm experienced by some consumers who buy products using BNPL credit offers. There are a range of firms who offer BNPL as part of their credit offers; these include catalogue credit, store cards and retailers who offer finance at the point of sale (this can be in-store or online).

BNPL offers tend to provide a promotional period, typically up to 12 months, during which consumers do not have to make payments and are not charged interest. However, if the consumer does not repay the entire amount within this period, then interest will usually be charged from the date of purchase. Consumers who repay part, but not all, of the amount owed are still charged backdated interest on that part. Typically, over a third of consumers do not repay within the offer period, incurring interest charged from the date of purchase.

The proposals mean:
• Firms cannot charge backdated interest on amounts of money that have been repaid by the consumer during the BNPL offer period.
• Firms have to provide better information to consumers about BNPL offers. The information should be more balanced and appropriately reflect the risks as well as the benefits of the product.
• Firms must give prompts to consumers, to remind them when the offer period is about to end, so that consumers are more likely to repay the credit before they incur interest.

Christopher Woolard, Executive Director of Strategy and Competition, at the FCA, 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 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 for the disclosure measures will come into force on 12 September, 2019. The partial repayment rule, which will prevent backdated interest from being charged on repaid amounts, will come into effect on 12 November, 2019.