UK cost-of-living crisis prompts warning to 'buy now, pay later' lenders

Openpay

19/08/2022 08:25

By Huw Jones
    LONDON, Aug 19 (Reuters) - Britain's financial watchdog has
told firms offering 'buy now, pay later' loans to spell out the
cost of late repayments to customers as the UK cost-of-living
crisis intensifies.
    Companies like Klarna led the way in offering on-the-spot,
interest-free, short-term loans to customers which spread
repayments for buying goods like clothes over a few weeks.
    Lenders make money by taking a cut from what they help
retailers sell, and banks are now piling in to serve customers
who would normally be unable to get a credit card or would fail
strict credit checks.
    BNPL loans are unregulated in Britain, but the Financial
Conduct Authority has powers to intervene in how they are
advertised.
    The FCA told BNPL firms and the British Retail Consortium in
letters published on Friday that benefits of 'buy now, pay
later' were being emphasised in adverts without fair and
prominent indications of any relevant risks.
    Some BNPL lenders charge late payment fees, and a failure to
pay can also hit consumers' credit ratings.
    The watchdog said it would use criminal and regulatory
enforcement powers to tackle promotions which breach its rules.
    "Unauthorised firms might be committing a criminal offence
if they don’t have an FCA-authorised firm approve their
financial promotions," the watchdog said.
    So far this year, the FCA has forced 4,226 promotions to be
withdrawn or amended.
    Money is becoming tighter for many consumers faced with
rocketing energy tariffs and 40-year high inflation pushing up
food prices, making BNPL products an option in a financial
squeeze.
    "As we face a cost-of-living crisis, consumers are having to
make difficult decisions about their finances and how they pay
for goods and services," said Sheldon Mills, the FCA's executive
director of consumers and competition.
    Britain is to hold a public consultation on draft
legislation to introduce BNPL affordability checks.  urn:newsml:reuters.com:*:nL1N2Y70G8
    The FCA in February told BNPL operators Clearpay, Klarna,
Laybuy  LBY.AX  and Openpay  OPY.AX  to change their contracts
after identifying potential harm to customers. It had to use
Britain's consumer rights law to do so.  urn:newsml:reuters.com:*:nL8N2UP241

 (Reporting by Huw Jones; Editing by Jan Harvey)
 ((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters
Messaging: huw.jones.thomsonreuters.com@reuters.net))