The Financial Conduct Authority (FCA) has issued a warning to companies offering buy now, pay later (BNPL) products that adverts must comply with financial promotion rules.
The FCA does not yet have direct regulatory jurisdiction over the booming BNPL market. The government has outlined a new system of rules, but no legislation has been passed to grant the regulator specific powers for the online checkout model that lets consumers split payments into instalments.
The FCA has been calling on the government to implement BNPL regulation to give it greater control over fintech companies such as Klarna, Zilch and Payl8r.
Despite this, the FCA has flagged the promotion of BNPL services as a serious area of concern. The financial watchdog highlitghted the risk of consumers being misled by online adverts and social media influencer partnerships.
The FCA said that BNPL firms may highlight the benefits of using these products without giving proper focus to the risks customers can face.
These risks, according to the regulator, include taking on unmanageable debt, facing unforeseen consequences for missing payments, and negatively impacting customer credit files.
The concerns from the regulator are particularly serious amid the increased cost of living in the UK.
“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,” said Sheldon Mills, executive director of consumers and competition at the FCA.
“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.”
A spokesperson from BNPL giant Klarna responded to the FCA’s warning, telling the company’s promotions “already comply with FCA rules.” The spokesperson added that Klarna “shares the concerns outlined in the FCA’s letter”, because “not all BNPL providers operate to the same high standard as Klarna”.
Klarna has been calling for faster implementation of the BNPL regulation since before the government’s proposals were first outlined.
The FCA previously wrote to finance firms, including all BNPL providers operating in the UK, urging an emphasis on customer protection policies during the crisis.
BNPL firms, including Zilch, came under fire from consumer protection groups in May for promoting the use of BNPL as a way to manage energy bills.