The Financial Conduct Authority (FCA) has taken further steps to enhance consumer protection in the rapidly growing Buy-Now Pay-Later (BNPL) sector. These interim measures address rising concerns around consumer understanding and the risk of harm, particularly as BNPL usage increases amidst economic uncertainty.
Although BNPL products are not yet fully regulated, the FCA is acting ahead of forthcoming government legislation by using its powers under the Consumer Duty and existing consumer protection laws to introduce stronger safeguards now.
Key Consumer Protections Introduced
The FCA has secured commitments from major BNPL providers, such as Clearpay, Klarna, Laybuy, and Openpay, to implement the following improvements:
- Clearer loan terms: Ensuring that key product features are communicated in a fair, transparent, and accessible manner.
- Improved disclosure of late payment consequences: Including fees and the potential impact on consumers’ credit files.
- Fairer contractual terms: Revisions to customer contracts that align with the fairness principles under the Consumer Rights Act 2015.
The FCA identified several terms as potentially unfair and has taken a proactive approach to ensure these are amended. This underscores the regulator’s intent to prevent consumer detriment, even in currently unregulated BNPL arrangements.
The Role of the Consumer Duty
These developments highlight the importance of the Consumer Duty, which came into force for open products in July 2023 and 31 July 2024 for closed products.
Under the Duty, all FCA-authorised firms are required to:
- Act in good faith towards retail customers.
- Avoid causing foreseeable harm.
- Enable and support customers to pursue their financial objectives.
Although many BNPL providers offering interest-free credit are not yet fully FCA-authorised, those that partner with FCA-authorised firms, such as lenders or payment service providers, are indirectly subject to relevant consumer protection expectations.
Firms engaged in credit broking activities for BNPL must ensure adherence to regulatory requirements, including fair treatment of customers, transparent disclosures and avoidance of misleading marketing.
Implications for Authorised Firms
This development is a clear signal that the FCA expects all firms involved in BNPL activities, whether directly or through partnerships, to adopt a consumer-centric approach:
- Retailers, brokers and embedded finance platforms should review their contracts, customer communications, and distribution arrangements to ensure they are aligned with the FCA’s expectations.
- Boards and compliance teams must assess whether their current product governance frameworks, customer support mechanisms and oversight controls are consistent with the outcomes-focused approach required under the Consumer Duty.
As enabling legislation is anticipated to bring BNPL fully under FCA regulation, firms should begin preparing for:
- Authorisation requirements under the Consumer Credit Act 1974 and associated permissions in the FCA Handbook such as CONC (Consumer Credit sourcebook).
- Enhanced regulatory reporting and ongoing compliance obligations.
The FCA’s use of its current powers reflects a more assertive and pre-emptive supervisory stance. Non-bank lenders, fintech platforms and their partners must be ready for closer scrutiny and potential enforcement action.
How Complyport Can Help
Complyport is well-positioned to support firms navigating the evolving regulatory landscape around consumer credit, BNPL and Consumer Duty compliance.
We offer:
- Gap Analysis of Consumer Duty Implementation: We assess your firm’s current frameworks against the FCA’s Consumer Duty requirements to identify areas of non-compliance and recommend corrective actions.
- Review of Contractual and Promotional Materials: Our experts review your customer-facing documents and marketing to ensure they meet FCA standards on fairness, transparency and consumer understanding.
- Regulatory Readiness Assessments: We evaluate your business model, controls and governance to help you prepare for FCA authorisation under the forthcoming BNPL regulatory regime.
- Ongoing Compliance Monitoring: We provide regular, independent reviews of your compliance systems and controls to help you maintain regulatory alignment and avoid enforcement risks.
Contact Complyport today to book a meeting with one of our Subject Matter Experts.
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