FCA rules for buy-now-pay-later products could save customers up to £60m

BNPL offers tend to provide a promotional period, typically up to 12 months, during which consumers do not have to make payments and are not charged interest. However, if the consumer does not repay the entire amount within this period, then interest will usually be charged from the date of purchase.

There are a range of firms that offer BNPL as part of their credit offers, including catalogue credit, store cards and retailers who offer finance at the point of sale.

Consumers who repay part, but not all, of the amount owed are still charged backdated interest on that part. Typically, over a third of consumers do not repay within the offer period, according to the FCA, incurring interest charged from the date of purchase.

The rules will mean:

• Firms cannot charge backdated interest on amounts of money that have been repaid by the consumer during the BNPL offer period;
• Firms must 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, and;
• 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, executive director of strategy and competition at the FCA, said: "The changes we are announcing today in the BNPL sector… are intended to simplify these products and make it easier for consumers to make informed decisions.

"The rules we will be implementing will not only improve the information consumers receive about BNPL offers but will stop firms from charging backdated interest on sums repaid during the offer period. We expect the overall package of measures will save consumers around £40m-60m 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."

Peter Tutton, head of policy at StepChange Debt Charity, described the changes as “modest, but welcome”.

He added: “When people’s eyes are on the goods they want to buy, and the credit is being offered through the retailer, it is particularly important that the nature of the credit product being dangled as the means to the desired end is made unequivocally clear.

“It is positive to see the FCA banning the practice of backdating interest on any element of borrowing repaid within the borrower’s 0% interest period. Looking ahead, we would hope to see the FCA take a closer look at the ongoing use of discounts and incentives. We would like the FCA to continue to scrutinise the evidence of consumer harm in this area and ensure consumers are protected against poor practice.”