FCA Buy Now Pay Later Policy Statement
The FCA published its Policy Statement on Buy Now Pay Later (BNPL) offers on 12 June 2019. This publication summarises the feedback to the Consultation (CP 18/43)
alongside the final rules.
Buy Now Pay Later offers are credit offers with a promotional period – usually up to 12 months – during which no repayments are required to be made. Where the customer repays the amount in full within the promotional period, then it is usually the case that no interest is charged. However, if the entire amount is not repaid within the period, then interest is usually charged on the unpaid part, backdated to the date of purchase, or in some cases, on the entire amount of credit (including the paid part), backdated to the date of purchase.
These types of offers are used by many firms, including those that offer catalogue credit, store cards and other finance at the point of sale (both in store and online).
The FCA’s changes aim to reduce harm to consumers caused by unclear information, and the practice of backdating interest on amounts that have been repaid during the promotional period. Its research found that around 3 million consumers used BNPL products in 2016, and that around 50% did not repay the full balance within the promotional period, meaning that around 1.5 million customers are likely to have been charged interest on at least some of the principal.
The key features of the new rules mean that firms:
Cannot charge backdated interest on an amount that has been repaid during the promotional period.
Must give consumers an adequate understanding of the financial consequences of failing to repay within the offer period, both before and when most relevant during the credit agreement.
Point of sale retail finance providers must also give:
Prompts to customers, to remind them when the offer period is about to end, so that consumers are more likely to repay the credit before they start to incur interest.
Adequate explanations; they must provide better information to customers about BNPL offers. The information must include information about the risks as well as the benefits of the product.
The adequate explanation provision means that the rule in CONC 4.2.15R (8) will be extended to firms offering BNPL offers. This means that affected firms will need to disclose to customers the method by which they will be charged interest if they fail to repay within the offer period.
The FCA have also implemented a definition of ‘retail revolving credit’ to cover catalogue credit and store cards – the definition does not include credit cards. Credit agreements from retail revolving credit providers must include the following information within the adequate explanation:
The limitations that apply to any zero percentage or low interest, introductory or other promotional offer, including the circumstances in which interest or charges could become payable.
How these would be calculated if these circumstances arose, including the date from which interest or charges would accrue.
The rate of that interest or those charges and the amount of principal on which the interest would be charged.
If, for example, failing to meet the conditions for the application of the offer period would result in interest being charged at a higher rate, or from the date of the purchase of the goods or services, or on the total price of the goods or services without account being taken of repayments made during the offer period, this must be included in the adequate explanation.
The rule in CONC 6.7.16A R will also be extended to firms offering BNPL, meaning that these firms will need to send a clear, prominent and timely notice to customers before the end of an offer period, reminding them of actions they need to take to meet the conditions of the offer, and the date by which they must take the action. This prompt should be provided via an ‘appropriate medium’, so either by the preferred method if the customer has previously stated one, or the most appropriate method for the message by which the customer would expect the firm to communicate with them.
Firms offering BNPL must present the offers in a clear and balanced way, which highlights the risks in a prominent manner. This information should aid customers’ knowledge of both the benefits and the risks of the product throughout its lifecycle, and when they make a decision about whether or not to take out new BNPL credit under the existing agreement. This should include the circumstances in which customers may have to pay interest, how that interest is calculated, and the consequences of failing to pay.
These rules come into force on 12 September 2019.
The new rule on partial repayment comes into force on 12 November 2019. The FCA hope that this rule will remove the disincentive for consumers to repay within the promotional period, unless they can repay the full amount. This will not apply retrospectively to purchases already made, but will apply to purchases made after the implementation date, including where those purchases are made under a pre-existing contractual agreement.