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FCA action drives change to 'buy now, pay later' finance

Buy Now Pay Later symbol

The Financial Conduct Authority is freeing consumers from full back-dated interest charges when they partly pay amounts owed under ‘buy now, pay later’ (BNPL) finance deals.

BNPL offers tend to provide a promotional period during which consumers do not have to make payments and are not charged interest. But if the consumer does not pay off the entire amount before that promotional period ends, interest is usually charged from the date of the agreement on the full amount, even when a consumer has repaid part of the amount in the period, said the FCA.

The FCA’s new rules will be in force by November 12, and affect a range of sectors which offer BNPL, including store cards and retailers’ point of sale finance.

“The measures are designed to reduce the harm experienced by some consumers who buy products using BNPL credit offers,” said the FCA.

The proposals confirmed today mean:

  • Firms cannot charge backdated interest on amounts of money that have been repaid by the consumer during the BNPL offer period.
  • Firms have to provide better information to consumers about BNPL offers. The information should be more balanced and appropriately reflect the risks as well as the benefits of the product.
  • Firms must give prompts to consumers, to remind them when the offer period is about to end, so that consumers are more likely to repay the credit before they incur interest.

Christopher Woolard, the FCA’s executive director of strategy and competition, said the changes are intended to simplify these products and make it easier for consumers to make informed decisions.

"We expect the overall package of measures will save consumers around £40-60 million a year and tackle the harm we identified in this market.

"As we have shown, we will intervene where we see harms and we remain vigilant in this and other sectors."

The FCA said its desired outcome is that more consumers repay in full during the promotional period and others repay more of their debt during the period, so that they incur less interest and repay their debt more quickly.

"The combination of the product being simpler (because interest charging will be simpler) and clearer information for consumers should help consumers make more informed decisions and use the product better," it added.

The rules for the disclosure measures will come into force on September 12, 2019. The partial repayment rule, which will prevent backdated interest from being charged on repaid amounts, will come into effect on November 12, 2019.

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