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Buy now, pay later firms to refund fees as watchdog cracks down

·Finance Reporter, Yahoo Finance UK
·4-min read
BONN, GERMANY - JANUARY 03: In this photo illustration a smartphone with the Klarna app on a table on January 03, 2022 in Bonn, Germany. (Photo Illustration by Ute Grabowsky/Getty Images)
Buy now, pay later firms will make contract terms fairer and easier to understand. Photo: Getty

Some buy now, pay later (BNPL) firms have agreed to refund customers’ late payment fees after the financial watchdog identified potentially unclear contract terms and conditions.

Clearpay, Laybuy (LBY.AX), and Openpay (OPY.AX) have all agreed to voluntarily refund clients who were charged late payment fees in specific circumstances.

The Financial Conduct Authority (FCA) said four buy now, pay later firms agreed to make terms and conditions clearer, with the regulator adding that Clearpay, Klarna, Laybuy and Openpay fully co-operated with the FCA’s work.

The watchdog said there was a potential risk of harm to consumers as a result of the way some firms’ terms had been drafted.

The FCA said the refunds would be paid where a customer has cancelled their entire order but have been charged a late payment fee for a loan repayment after the loan should have been cancelled.

However, this does not apply where the consumer has returned part of the order because instalments would still be due, although the instalments should be re-adjusted to take into account the refunds in respect of the returned goods.

Read more: ‘Online rip-off tip-off’ campaign launched as 7 out of 10 people get scammed

Customers who believe they might have affected, should contact the BNPL company. If they have an BNPL loan with another company and think the same thing may have happened, they should get in touch and make a complaint.

Even though the type of BNPL agreements offered by these firms are not yet regulated, the FCA was able to use the Consumer Rights Act to assess the fairness and transparency of firms’ terms.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “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.

“The four BNPL firms we have worked with have all voluntarily agreed to change their approach. We welcome this and hope that the rest of the industry will now follow.”

BNPL use nearly quadrupled in 2020 hitting £2.7bn, but the firms are not currently regulated by the FCA in the same way as other borrowing.

“All of these are hugely positive changes, but it’s incredibly frustrating that the FCA is so limited in the steps it can take until it regulates the industry. Meanwhile, the cost-of-living crisis means more people risk falling into the buy now, pay later trap,” Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said.

Read more: Buy now, pay later firm Klarna launches payment card in the UK

“The expansion of services means you can now spread the cost of the supermarket shop. This is a really worrying development, because it means in subsequent weeks or months, you’ll be paying for multiple shops at once. It’s never a good idea to borrow to pay for the essentials, because you’re just storing up trouble for later, and nobody should be buying consumables on credit.”

A form of unsecured credit, BNPL products typically offer on the spot interest-free short-term loans that spread payments for retail goods like clothing.

“The major BNPL players have had their first taste of what life will be like under FCA regulation — and it has already had a pounds and pence cost for these companies, having chosen to voluntarily refund customers who have been charged late payment fees in specific circumstances,” Myron Jobson, senior personal finance analyst at Interactive Investor, said.

“It is high time that the mushrooming BNPL industry is brought into regulation and be subject to the same rules as the traditional credit industry, requiring things like affordability checks and making sure customers are treated fairly. Many shoppers view BNPL as different from credit cards and are unaware of the cold hard fact that BNPL purchases are a form of credit that could tarnish their credit score if they miss payments.

The watchdog said that all firms in the sector should comply with all requirements of consumer protection laws that apply to their business.

Watch: The risks of buying now and paying later

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