Financial Conduct Authority  

FCA: Buy now, pay later ads ‘failing to be balanced’

FCA: Buy now, pay later ads ‘failing to be balanced’

The Financial Conduct Authority has issued a warning over unregulated buy now, pay later agreements between lenders and suppliers, stating they were “failing to be balanced” and “encouraging impulse buying”.

In a letter to chief executives, the City regulator said it had seen promotions on websites, social media, and by influencers which “may breach” its financial promotion rules.

The letter was sent to CEOs of both buy now, pay later firms and suppliers which offer this payment option.

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The FCA is wary buy now, pay later is becoming “increasingly popular” and, as millions struggle to cope with the biggest cost of living crisis in a generation, consumers are having to make difficult decisions about their finances and how they pay for goods and services. 

“The benefits of buy now, pay later products have been emphasised without fair and prominent indications of any relevant risks to customers,” it said.

It listed relevant risks such as taking on debt that customers cannot afford to repay,  consequences of missed payments, and information about when charges become payable.

“Taking advantage of behavioural biases also hinders effective consumer decision making, and we are concerned buy now, pay later promotions may be encouraging impulse buying,” the FCA added.

An unregulated buy now, pay later agreement is when the lender agrees a fixed sum credit with repayments made within 12 months, where the credit is supplied without interest or other charges.

At the moment, lenders and merchants do not need to be authorised by the FCA to enter these sorts of agreements, but adverts showcasing them must still comply with certain regulatory requirements.

In its letter, the FCA set out the requirements for financial promotions:

  • Must be balanced, and, in particular, does not emphasise any potential benefits of entering into an unregulated buy now, pay later agreement without also giving a fair and prominent indication of any relevant risks;
  • Must be sufficient for, and presented in a way that is likely to be understood by, the average member of the group to which it is directed, or by which it is likely to be received;
  • Must not disguise, omit, diminish or obscure important information, statements or warnings.

The regulator also highlighted that it is a criminal offence for an individual in the course of business to communicate a financial promotion unless they are an authorised person, their content has been approved by an authorised person, or they have an exemption.

Firms in breach of this could face a maximum sentence of two years imprisonment, a fine, or both.

Going forward, the FCA intends to “proactively monitor” the market to assess compliance, by being able to withdraw permissions and issue fines if it comes across non-compliant financial promotions.

The watchdog also mentioned its consumer duty, set to come into force next year, which applies to firms regardless of whether they have a direct relationship with retail customers.

“While we implement the duty, we will use existing powers against firms where consumer outcomes need to improve,” it said.