With online shopping at an all-time high, the “Buy Now, Pay Later” (BNPL) options are becoming increasingly popular. BNPL is an option that allows customers to delay payment for goods or pay in installments. The service usually bears interest that consumers have to pay. It differs from hire purchase in that with BNPL the customer owns the goods when they buy it and only delays the due date for paying for the goods. This seemingly easy way to get credit is now regulated in the UK.
In 2019 the Financial Conduct Authority (FCA) regulated BNPL practices through its Policy Statement (PS19 / 17). Indeed, on February 2, 2021, HM Treasury and FCA announced that BNPL would be fully involved in regulating financial services. The timing is uncertain as parliamentary time is a high and likely FCA consultation that takes place alongside or after the legislation itself. For more information on BNPL and these regulations, please see our previous blog post here.
Now the Committee of Advertising Practice (CAP), part of the sector regulator, the Advertising Standards Authority, has published guidelines setting out the restrictions on advertising BNPL services, especially when they are presented to consumers as part of the online checkout process – Available for purchase. The current guidelines cover services that are not regulated by the FCA. This will change with the new legislation described above, but currently these are services that:
- Do not charge interest (although they may charge late payment fees); and
- Enable consumers to defer payment by either billing the full amount after a set deadline or by allowing payment in installments.
In line with the call to ensure that the BNPL options are fair and transparent, the GAP guidelines provide guidance on forms of marketing communication and the information to be provided during the online checkout process.
The new rules for marketing BNPL services are as follows:
- Advertisers need to make it clear that late payments are a form of credit.
- Advertisers should not promote BNPL services as they do not affect consumer creditworthiness. Many BNPL providers only perform “soft” credit checks that do not affect a consumer’s credit report. However, calculating a credit score is complex and failure to comply with the BNPL terms can affect a person’s credit score. The new GAP rules therefore forbid providers from claiming that their services have no impact or consequences on creditworthiness unless they can prove otherwise.
- Advertisers need to ensure that their terms and conditions use caution when using the word “free”. Advertisements should make it clear whether fees or late fees will be incurred and should not state or imply that BNPL services are suitable for all consumers or that they are “risk free”.
- Except in certain circumstances, advertisements for financial products under the GAP Code must contain “the type of contract offered, any restrictions, costs, penalties or fees and the conditions for withdrawal”.
The second part of the manual contains information on BNPL product information during the online ordering process. There is concern that BNPL services will be provided in such a way that consumers can sign up for a BNPL scheme without realizing that they are doing so. The regulator’s new rules emphasize the importance of:
- Providers clarifying that there are other payment options (i.e. standard payment), especially if the BNPL option is presented in the form of a card detail entry form.
- In line with maximizing transparency, although vendors may provide a link to a full set of terms and conditions, important terms (including fees, payment schedules, and penalties) should be clear as part of the ordering process rather than being made available through a link.
BNPL services have also been a target for identity theft, an issue the FCA is increasingly focusing on as reports of such activity put pressure on loan providers. It is fair to say that these ASA changes can become insignificant when BNPL is regulated by the FCA. We will update these suggestions as they become more specific.
Please contact Carlton Daniel (partner), Mathew Lewis (partner), Paul Anderson (partner) or Lucia Harnett (trainee) for more information.