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World Consumer Rights Day: Buy now, pay later and the law

View profile for David Rogerson
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World Consumer Rights Day will be on 15th March in 2022, with the theme of ‘Fairer Digital Finance’. This article looks at one of the most popular consumer credit schemes today - buy-now-pay-later.

Buy-now-pay-later (BNPL) products have rapidly gained traction with consumers, with many of the world’s most popular online retailers partnering with providers such as Clearpay, Klarna, Laybuy and Openpay to give consumers the option to pay in instalments.

The volume of online transactions tripled during the pandemic, increasing uptake of BNPL schemes to around £2.7billion in 2020. However, these agreements are not currently regulated by The Financial Conduct Authority (FCA), and there is concern that agreements may be harmful to consumers.

Do consumers have difficulty understanding the terms of BNPL agreements?

Consumer rights champion Which? has called for stronger protection for consumers who chose to use  BNPL products.

Which? interviewed several BNPL users, which revealed that many did not understand the risks and consequences of using BNPL.  According to Which?:

“Many of the BNPL users interviewed by Which? did not think of BNPL schemes as a form of credit, meaning they could unwittingly be exposing themselves to serious risks of missing repayments, such as late fees, marked credit reports or referral to a debt collector,”

Regulating BNPL

The UK Government has plans to regulate BNPL providers and make changes to the law.  The Financial Conduct Authority (FCA) has recently used its influential power to work with the four biggest BNPL providers. As a result, the FCA has secured changes to the contract terms that consumers must agree to when selecting ‘pay later’.

The BNPL providers have agreed to make the terms of the BNPL offering much clearer, particularly around matters such as contract cancellations. They have also committed to making terms and concepts easier to understand.

Some customers may be eligible for refunds where they have been unfairly charged. Laybuy, Clearpay and Openpay have agreed to change their late payment fee terms, and will also voluntarily refund customers in certain circumstances.

Executive director of consumers and competition at the FCA, Sheldon Mills,  said:

“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 terms and conditions.”


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