FCA secures changes to unfair and unclear BNPL contract terms at four firms

The Financial Conduct Authority has secured changes to potentially unfair and unclear terms in the contracts of Clearpay, Klarna, Laybuy and Openpay, the Finance & Leasing Association reported on 15 February 2022¹. The four buy now pay later firms voluntarily agreed to change their approach, and the FCA hopes the rest of the industry will follow¹.

Even though this type of buy now pay later agreement is not yet regulated, the FCA was able to use the Consumer Rights Act to assess the fairness and transparency of the terms¹. The regulator was concerned there was a potential risk of harm to consumers as a result of the way some of the firms' terms were drafted¹.

"In addition, one of the terms that involved late payment fees has resulted in three firms agreeing to voluntarily refund customers who have been charged late payment fees in specific circumstances."

Finance & Leasing Association¹

The changes cover four areas of the contracts¹:

Term	What the FCA found
Cancellation after returning goods	Terms required consumers who returned goods to keep paying instalments until the firm received confirmation from the retailer, or the refund, even though the loan agreement should have been terminated under regulation 38(1) of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013
Account termination or suspension	Terms could be used to terminate or suspend an account for any reason without notice and restrict or end access in an unreasonable way; the FCA considered this discretion too broad
Right of set-off	Terms could be used by firms to exclude inappropriately a consumer's right to deduct money owed to them from payments due
Continuous Payment Authority	Firms updated their information to make clear how a consumer can cancel a Continuous Payment Authority

On cancellations, the FCA noted that some consumers continued paying instalments where they did not need to, or were charged late payment fees for not paying instalments after the loan agreement should have been terminated¹. This may have happened because of a delay in the retailer telling the buy now pay later firm that the consumer had cancelled their online sales contract¹.

The FCA published a statement summarising the changes made by the firms, which also contains guidance for firms in the sector more generally¹.

Why it matters for households

The terms applied to customers of Clearpay, Klarna, Laybuy and Openpay, four of the providers covered in our guide to buy now pay later providers and in our explanation of how buy now pay later works, late fees and your rights. The refunds relate to late payment fees charged in specific circumstances, and three of the four firms agreed to make them¹. The FCA has not set out in this account which three firms are refunding, how much is involved, or how customers are identified, and those details have not been reported¹.

The contract changes affect how cancellations are handled when goods go back to the retailer, when an account can be closed or suspended, how the right of set-off is treated, and how a continuous payment authority can be cancelled¹. The FCA's assessment rested on the unfair contract terms rules in the Consumer Rights Act, which can apply even where an agreement sits outside the FCA's ordinary regulated perimeter¹.

What happens next

The four firms have made the changes voluntarily¹. The FCA has said it hopes the rest of the industry will now follow¹. No further dates or deadlines are given in the FCA's account of the changes¹.

Sources1 cited