The FCA has warned firms which offer "Buy Now Pay Later" (BNPL) products that the financial promotions of all BNPL products must comply with the financial promotion rules, even though some of the underlying agreements are unregulated. Its Dear CEO letter concerns both authorised and unauthorised firms as well as merchants that introduce customers to BNPL firms.
The FCA reminds unauthorised firms they may be committing a criminal offence if they do not have an FCA-authorised firm approve their financial promotions. It also reminds authorised firms selling unregulated or exempt BNPL products that they must comply with the relevant rules unless an exemption applies. This includes that their BNPL financial promotions must be clear, fair and not misleading.
Unauthorised merchants communicating invitations to their customers to use BNPL agreements also should consider whether they need to obtain approval of the communication from an authorised firm to avoid the risk of committing a criminal offence.
The FCA is concerned consumers could be misled if BNPL financial promotions do not comply and has seen financial adverts on websites and social media, including posts by social media influencers, which may breach FCA rules. These include adverts emphasising the benefits of BNPL products without fair and prominent warnings of any risks to customers, such as:
- the risk of taking on debt that customers cannot afford to repay;
- the consequences of missed payments; and
- any other adverse consequences such as the impact on the customer's credit file information about when charges become payable.
Although the FCA does not yet regulate BNPL products it has been proactively addressing concerns about potential harms to consumers.
Final rules in relation to the new Consumer Duty were also recently confirmed. The new rules require authorised firms to avoid foreseeable harm to retail customers with outcomes that include monitoring consumer understanding. In its Dear CEO letter, the FCA confirms that the rules are applicable to all firms involved in the production, approval or distribution of retail customer communications, regardless of whether the firm has a direct relationship with a retail customer, and including where a firm produces, approves or distributes financial promotions or other advertisements.
The FCA has confirmed it will use criminal and regulatory enforcement powers if it sees promotions that do not comply. So far this year, FCA action against firms that have breached its rules have led to 4,226 promotions being changed or withdrawn.
"As we face a cost-of-living crisis, consumers are having to make difficult decisions about their finances and how they pay for goods and services. Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely and properly informed decisions. It is vital that adverts are clear, fair and not misleading." Sheldon Mills – Executive Director of Consumers and Competition, FCA