Buy now pay later firms face advertising clampdown

City watchdogs have warned that adverts for some buy-now-pay-later (BNPL) products fail to flag up the risks of debt to customers.

The Financial Conduct Authority (FCA) said it has already warned BNPL firms that while the industry itself was unregulated, promotions of its services would still need to comply with existing rules.

The regulator had seen promotions of BNPL that did not ‘prominently warn’ consumers of the risks of taking on debt they cannot repay as well as the consequences of missed payments and the possible impact on their credit rating.

BNPL allows customers to split the cost of purchases into instalments, often with no interest or charges unless they fail to pay back on time.

The method of payment is popular with younger shoppers and in sectors such as clothing and fast fashion.

But the industry, which includes major players such as Klarna and Clearpay, has come under growing scrutiny amid mounting concerns it is allowing customers to unknowingly build up debt.

The FCA has published a consultation paper ahead of a possible change to the law that would require firms to obtain its approval for financial promotions.

The watchdog said the planned changes would allow it to ‘intervene faster’ against financial promotions that were either inaccurate or left consumers vulnerable to scams.

BNPL products have been classed as ‘high-risk’ by the regulator, alongside other unregulated investments such as crypto-currency.

‘The regulator wants to squeeze the buy-now-pay-later market and ensure that people fully understand the risks of using the products,’ said Laura Suter, head of personal finance at broker AJ Bell.

She added that the FCA’s intervention was ‘timely’, given the growing concern that some will rely more heavily on BNPL over Christmas, potentially setting up a debt time bomb to go off in the new year.

These have been fuelled by statistics showing a surge in the popularity of BNPL, with recent data showing 27 per cent of consumers were already using the products for purchases.

‘During the cost of living crunch and expected recession, it’s inevitable that more will turn to alternative forms of debt, such as buy-now-pay-later and it’s crucial they go in with their eyes open to the risks involved,’ Suter said.

The FCA’s plans come as MPs are due to vote later today on an amendment to the Financial Services and Markets Bill which would require the Government to publish regulations on BNPL within 28 days of it becoming law.

Labour’s front bench is expected to back the amendment, tabled by Labour MP Stella Creasy, while several backbench Conservative MPs are also expected to support the measure.