Four companies buy now, pay later and change ‘potentially unfair terms’ | Financial Regulator

Big ‘buy now, pay later’ companies Clearpay, Klarna, Laybuy and Openpay have agreed to amend ‘potentially unfair and unclear’ terms and conditions following intervention by the financial regulator.

The Financial Conduct Authority (FCA) said it could use consumer law to enforce the changes. However, the regulator acknowledged that it still lacked the power to regulate the sector to the same standard as other consumer credit companies.

Companies have been asked to amend the terms of the contract on termination and standing payment powers of attorney to make them “fairer and easier to understand”, the FCA said. Clearpay, Laybuy and Openpay also agreed to refund some late payment fees they erroneously charged after customers canceled orders.

The use of buy now, pay later (BNPL) has exploded in recent years, with an FCA review last year showing the UK market had tripled in 2020 alone, even as other forms of short-term consumer credit like payday loans fell back after being forced to improve their consumer protection. According to consultancy Bain & Company, the UK market is worth an estimated £6.4 billion a year and is used by around 10 million shoppers.

The government is considering introducing new rules for the sector but has yet to detail what actions it will take.

BNPL services are typically offered online at the point of sale, allowing buyers to pay in installments. Unlike payday lenders or credit cards, BNPL lenders typically do not charge interest on loans, which means they circumvent applicable regulations. Retailers pay corporate fees instead.

Rapid growth — and the prospect of lending platforms spreading to retailers around the world — has propelled BNPL companies to tremendous valuations that Silicon Valley tech companies typically enjoy rather than consumer lending firms. Swedish company Klarna was valued at $45 billion in an investment round backed by SoftBank, the Japanese investment fund, in June.

Stella Creasy, the Labor MP for Walthamstow, criticized the FCA’s “whack-a-mole” approach to attacking BNPL companies. She told the Guardian they are the latest example of “legal loan raking”, encouraging consumers to make a habit of borrowing money they cannot afford to pay back. That’s an issue regardless of whether the consumer is being charged interest, she said.

“That’s why we badly need regulation, and it has to be regulation on a par with the regulation that every other consumer lending company has to abide by,” said Creasy, who played a prominent role in tightening regulation of payday lenders like the Wonga collapsed . “These companies and the government are promoting the idea that this is a different industry and needs slightly different regulation.

“You can buy a pizza now and pay later. How is that different from credit on a credit card?”

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Klarna and Laybuy said they backed the call for the sector to be regulated directly by the FCA, rather than broader consumer laws.

Alex Marsh, the head of Klarna UK, argued that Klarna is “a fairer and more sustainable way for consumers to access credit” as it does not charge consumers any fees or interest on the credit. He said the company has welcomed FCA’s intervention and has always made it clear that it offers a credit product.

Gary Rohloff, who co-founded Laybuy in New Zealand before listing its shares in Australia, said the company is “absolutely committed” to “fair and transparent” terms.

A Clearpay spokesman said the FCA measure affected a “very small group of customers who may have been wrongly charged a late fee,” adding that they wanted to be “as transparent as possible.”

A spokesman for Openpay said the company welcomes the FCA’s guidance and supports “fair and proportionate regulation”.

Sheldon Mills, FCA’s Executive Director for Consumers and Competition, said: “Buy now, pay later has grown exponentially. We do not yet have the power to regulate these companies, but we do have the power to review consumer contract terms and conditions for fairness and have acted proactively to ensure the BNPL industry applies high standards in their terms and conditions.

He added he hopes the rest of the industry will follow the voluntary changes to the four companies’ terms.

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