UK tells ‘buy now pay later’ firms to give refunds, rewrite contracts Hans van LeeuwenEurope correspondent
Feb 14, 2022 – 11.18pm
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Share London | Britain’s financial regulator has reasserted its hawkish stance on ‘buy now pay later’ companies, telling four of them to rewrite some of their “potentially unfair and unclear” consumer contracts, and to refund some late-payment fees.
The Financial Conduct Authority’s targets were Afterpay’s British arm Clearpay, ASX-listed Openpay and Laybuy, and Swedish firm Klarna, in which Commonwealth Bank has a minority stake.
All four are scrambling to build their share of the booming British BNPL market, but with the shadow of potential government interventionhanging over the unregulated sector.
Consumer use of BNPL has grown exponentially in Britain, making it a honeypot for the Aussie players. Bloomberg
“As a result of the FCA’s work, the firms are making terms on issues like contract cancellations and continuous payment authorities fairer and easier to understand,” the FCA said in a statement late on Monday (AEDT).
“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 specific circumstances.”
The refunds will be paid in cases where a customer cancelled his or her order, but was charged a late-payment fee for a loan repayment after the loan should have been cancelled.
FCA executive director of consumers and competition Sheldon Mills said the four BNPL firms had all “voluntarily agreed to change their approach”, and other players should follow suit.
“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,” Mr Mills said.
A Clearpay spokesperson said a “very small group of customers may have been incorrectly charged a late fee because we were not notified of them returning a purchase within a certain time frame”. These customers would be automatically refunded, and a dedicated web page would be set up.
“We have also updated some working in our terms and conditions around returns, refunds and account closures,” the spokesperson said.
It is understood that for at least some of the companies, the FCA requirements accord with the firms’ de facto practices - so the financial impact will likely be limited. The Australian companies have already been through an equivalent exercise with ASIC in 2018.
Intense scrutiny
But the FCA’s announcement highlights the intense political and regulatory scrutiny of BNPL in the past couple of years, after the market quadrupled in size in 2020 to £2.7 billion ($5.1 billion).
Some politicians raised concerns of a repeat of Britain’s payday-lending imbroglio, fretting that the unregulated sector would allow people to rack up unaffordable levels of debt.
This prompted a formal review, which reported a year ago and flagged the prospect of regulations that might crimp the sector’s growth.
The reviewer, former FCA chairman Chris Woolard, said the government should consider making the BNPL players conduct affordability checks before lending to customers, which could slow down consumer uptake.
It also suggested retailers might need to be classified as “credit brokers”, which could deter merchants from signing up.
But the industry breathed a sigh of relief when the Treasury released its response last October, signalling a relatively light-touch approach. A public consultation on the Treasury proposals closed last month.
The government is expected to produce legislation this year stipulating which BNPL companies and activities should be regulated, and then the FCA will write the rulebook.
Last year a senior FCA official said BNPL “carries risks and the potential for harm”, and the regulator would “act assertively on harm around the edges of our regulatory perimeter” - including using its existing powers.
The FCA made good on that threat on Monday, suggesting it still takes a more hawkish view of BNPL than the Treasury.
Some of Britain’s banks are also trying to put pressure on BNPL. Barclays issued a report on Monday focusing on negative findings from an Opinium survey of 2000 people it commissioned earlier this month.
The survey found 24 per cent of BNPL users were worried about their ability to repay, and another 31 per cent were “overwhelmed by the amount coming out of their account in BNPL bills”.
“Our research identifies the shortcomings of unregulated short-term interest-free credit options, and highlights that people are still not clear on the repercussions of not making repayments,” said Antony Stephen, CEO of Barclays Partner Finance.
BNPL players have sought to counter this with their own data. Clearpay teamed up with Accenture last December on a report which said 20 per cent of its customers had stopped using credit cards since beginning to use BNPL, and another two-thirds had cut back - saving them £28 million in credit card fees last year.
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