The Financial Conduct Authority has had concerns about unregulated 'buy now pay later' (BNPL) products for some time, and now it has issued a blunt warning to firms about their advertising of such offers.
While some such agreements don't come under the scope of the FCA, which oversees firms' compliance in the consumer credit and insurance markets, it reminds companies that the financial promotions of all buy now pay later products must comply with the rules on financial promotions.
In the automotive sector, BNPL services are offered by the likes of Bumper, whose website confirms that its installment credit products are not regulated by the FCA.
"Unauthorised firms might be committing a criminal offence if they don't have an FCA-authorised firm approve their financial promotions," said the FCA.
"Authorised firms selling unregulated or exempt BNPL products must comply with the relevant rules unless an exemption applies. This includes that their BNPL financial promotions must be clear, fair and not misleading."
It has already intervened on 4,226 promotions so far this year, leading to their amendment or withdrawal.
Earlier this year the UK's finance regulator used its powers to enforce Consumer Rights Act and Unfair Terms In Consumer Contracts Regulations legislation to drive four BNPL providers - Klarna, ClearPay, OpenPay and LayBuy - to change their terms to make them fairer, easier for consumers to understand and to better reflect how they use them in practice.
The FCA is concerned consumers could be misled if BNPL financial promotions do not comply and it has seen financial adverts on websites and social media, including posts by social media influencers, which may breach FCA rules, by not giving fair and prominent warnings of any risks to customers such as consequences of missed payments, impact on the customer's credit file and details of when charges become payable.
"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 the FCA's executive director of consumers and competition Sheldon Mills.
"Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely and properly informed decisions. It is vital that adverts are clear, fair and not misleading."
The FCA is monitoring the market and has confirmed it will use criminal and regulatory enforcement powers if it sees promotions that do not comply.
A financial promotion is an invitation or inducement to enter into an agreement. A financial promotion for BNPL is any form of communication made across any media in the course of business, that invites a consumer to purchase a good or service by entering a BNPL agreement.
This includes, for example, posters in shop windows, paid for Google ads, and posts made by influencers on social media.
Regulated firms involved in the provision of consumer credit and insurance recently received the final rules of the FCA's new Consumer Duty, which will come into effect in mid-2023.