The Financial Conduct Authority (FCA) in the UK has ordered buy-now-pay-later (BNPL) firms Klarna, Clearpay, Laybuy and Openpay to make changes to their contract terms.
These firms were urged by the FCA to amend their consumer contracts after identifying a potential risk of harm to consumers because of the way some of the terms were drafted.
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According to FCA, the new changes will help consumers better understand the cancellation of contract and continuous payment authorities, termination of accounts, as well as set-off terms.
BNPL firms, which allow consumers to make purchases in instalments, are not yet regulated by the FCA.
However, the watchdog said that it was able to use UK’s consumer rights laws to assess and secure changes to the ‘fairness and transparency’ of the terms.
FCA Consumers and Competition executive director Sheldon Mills said: “BNPL has grown exponentially. We do not yet have powers to regulate these firms, but we do have powers to review the terms and conditions of consumer contracts for fairness, and have acted proactively to ensure that the BNPL industry adopts high standards in their terms and conditions.”
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By GlobalDataAs part of the development, Clearpay, Laybuy and Openpay offered to voluntarily refund consumers who were previously inappropriately charged fixed late payment fees after they had cancelled the order with the retailer.
Klarna, which does not charge late payment fees, has no such refunds due to consumers.
Mills added: “The four BNPL firms we have worked with have all voluntarily agreed to change their approach. We welcome this and hope that the rest of the industry will now follow.”
Increasing regulatory crackdown in BNPL space
In December last year, the US Consumer Financial Protection Bureau launched an inquiry into BNPL credit following concerns about consumer risk.
As part of the inquiry, BNPL firms Affirm, Afterpay, Klarna, PayPal, and Zip were ordered by the agency to submit data on the risks and benefits of their services.
The same month, Reuters reported that Australia is planning to broaden its existing payment regulations to bring BNPL firms under the direct supervision of regulators.
