With online shopping at all-time high, ‘buy now, pay later’ (BNPL) options are becoming increasingly popular. BNPL is an option that enables customers to delay paying for goods or allows them to pay in instalments. The service typically bears interest which consumers have to pay. It differs from hire purchase because with BNPL, the customer owns the goods on purchase, it is just that the due date for payment for the goods is delayed. This seemingly easy way to get credit is now, for better or worse, subject to regulation in the UK.
In 2019, the Financial Conduct Authority (FCA) stepped in to regulate BNPL practices through its Policy Statement (PS19/17). Indeed, on 2 February 2021, HM Treasury and FCA have announced that BNPL will be fully brought into financial services regulation. Timing is uncertain with Parliamentary time at a premium and likely FCA consultation running alongside or after the legislation itself. You can find out more about BNPL and these regulations in our prior blog post here.
Now the Committee of Advertising Practice (CAP), part of sector regulator, the Advertising Standards Authority, has published guidance setting out the restrictions for advertising BNPL services, particularly when they are offered to consumers as part of the checkout process when buying online. The current guidance covers services that are not regulated by the FCA. This will change with the new legislation described above, but at present, these are services which:
- Charge no interest (although they may charge late payment fees); and
- Allow consumers to defer payment by either charging the full amount after a set period or by allowing for payment in instalments.
In keeping with calls to ensure that BNPL options are fair and transparent, the CAP guidance sets out advice relating to forms of marketing communications and the information to be provided during the online checkout process.
The new rules on marketing BNPL services are as follows:
- Advertisers must make clear that delayed payments are a form of credit.
- Advertisers should not promote BNPL services as having no effect on consumers’ credit scores. Many BNPL providers perform only ‘soft’ credit checks, which do not impact a consumer’s credit report. However, the calculation of a credit score is complex and failure to comply with BNPL terms may impact an individual’s credit score. The new CAP rules therefore prohibit providers from claiming that their services will have no impact or consequences on credit scores, unless they can demonstrate otherwise.
- Advertisers must ensure that their terms & conditions exercise caution in the use of the word “free”. Advertising should make clear whether any fees or late charges apply and not state or imply that BNPL services are suitable for all consumers or that they are ‘risk-free.’
- Except in limited circumstances, under the CAP Code, ads for financial products are required to state “the nature of the contract being offered, any limitation, expense, penalty or charge and the terms of the withdrawal.”
The second part of the guidance sets out advice relating to BNPL product information during the online checkout process. There is a concern that BNPL services are being provided in such a way that consumers may enter into a BNPL scheme without realising they are doing so. The regulator’s new rules stress the importance of:
- Providers making it clear that there are other payment options (i.e. standard payment), particularly when the BNPL option is presented in the form of a card detail entry form.
- In keeping with maximising transparency, although providers may provide a link to a full set of terms & conditions, significant conditions (including fees, payment schedules, and penalties) should be clear as part of the checkout process, rather than being made accessible via a link.
BNPL services have also been a target for identity theft, an issue the FCA is increasingly focussed on as reports of such activity increase pressure on credit providers. It is fair to say that these ASA changes may pale into insignificance when BNPL comes to be regulated by the FCA. We will update with those proposals as they become more concrete.
Please contact Carlton Daniel (Partner), Mathew Lewis (Partner), Paul Anderson (Partner), or Lucia Harnett (Trainee) for more information.
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