BNPL refunds for customers: one small step for the FCA

Clearpay, Laybuy and Openpay have agreed to refund borrowers who were charged late payment fees in specific circumstances. All three, plus Klarna, had their contracts scrutinised by the FCA under the Consumer Rights Act. They have also agreed to amend terms in the contracts that were unfair or unclear. The FCA is expected to start regulating the industry this year.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “Buy-Now-Pay-Later borrowers could be due a bumper payout, after the FCA found some of the rules around late payments fees were unfair. Lenders will also make their contracts fairer and clearer. It’s great news for anyone who was unfairly charged these fees, but it’s a fraction of what the FCA could achieve if it wasn’t having to reach across the divide of regulation, and work with a couple of blunt instruments while the enormous potential of the full toolbox remains locked.

While it’s waiting to regulate the industry fully later this year, the FCA used the Consumer Rights Act to assess whether the contracts issued by four major players were fair and clear. Three companies: Clearpay, Laybuy and Openpay, will refund some borrowers, after the FCA discovered late payment fee rules on cancelled orders were unfair.

The refunds are due where the borrower cancelled their entire order. Under the old rule, shoppers had to keep paying instalments until the goods arrived back or the BNPL company had confirmation of the cancellation from the retailer. If they failed to pay, they were hit with late payment fees. The FCA said the loans should have been cancelled immediately, so the fees will be refunded.  If you think you may have been affected, you should contact the BNPL company. If you have a BNPL loan with another company and think the same thing may have happened to you, you should get in touch with them and make a complaint.

All four of the firms also agreed to amend other terms the FCA considered unfair, including the lender’s right to suspend an account without notice or restrict access in a way that could have been used unreasonably.  It was also concerned that when the lender owed money to a customer, if the customer tried to take that out of forthcoming instalments, the firms could unfairly refuse. And it was worried that if a customer set up a continuous payment authority – to enable the BNPL firm to regularly take chunks of money from a debit or credit card – it wasn’t clear how to cancel.

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. 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.

In theory they are a far more affordable way to spread the cost than a credit card, so if people need to borrow, it’s more cost-effective than sticking it on plastic. However, while spreading the cost is free, if you fail to make payments, some will impose late payment fees, and according to a study by The Centre for Financial Capability, a third of millennials who have used BNPL have paid these fees in the past.”

Proposals for regulation this year – laid out by the Treasury

  • People would have to complete a credit agreement before borrowing, which sets out the terms of the loan.
  • BNPL firms would use credit worthiness assessments, that look at both the risk customers can’t afford to repay, and overall affordability depending on their wider financial situation.
  • Those who borrow this way would have it reported consistently to credit reference agencies.
  • The way the services are promoted on retailers’ websites would have to comply with the FCA’s financial promotions regime, and the FCA would be able to check their compliance.
  • Those who miss payments and those in financial difficulty would be treated consistently and fairly.
  • Section 75 would apply to BNPL, making providers liable for breach of contract by the retailer in the same way that credit card providers are.
  • The rules would also be amended to cover credit agreements for less than £50.
  • Those who had difficulties with a BNPL provider could use the Financial Ombudsman Service