The Financial Conduct Authority (FCA) has acted to provide consumers with some much needed love and protection on Valentine’s day. If you’ve been into a dealership recently and used Klarna, Clearpay, Laybuy or Openbuy to pay for vehicle add-on products like extended warranties, GAP insurance and alike you could receive some money back. In fact, if you’ve used these products to buy any consumer product, from ear pods to a new sofa, then the FCA has got your back and handed you a proverbial rose.
BNPL versus credit and leasing products
So let’s get back to the motor industry and BNPL. You would normally buy a car using a finance product like Hire Purchase or Personal Contract Purchase (consumer credit) or lease it (consumer hire). These finance products have been regulated for many years by the FCA and its predecessors – offering you at least some protections. But then BNPL products came along a few years ago as challengers to the status quo – feeding on the consumerism we see in the UK and Western World – ‘I want it now, but I don’t want to pay for it yet’. BNPL products have been, and remain, unregulated as they are structured in such a way as to avoid Consumer Credit legislation and FCA rules. One of these features is the repayment time – BNPL agreements must be structured with repayment terms of 12 months or less to avoid being caught by regulation. A standard BNPL profile would mean the customer pays nothing for 3 or 6 months and then has to pay the outstanding balance within 9 or 6 months with often some flexibility around these timings. If these payments are not made then hefty late payment charges are applied.
So BNPL is not practical to use for large purchases like a car because the metal would remain unaffordable, but they have grown in popularity for cheaper consumables and some of the ‘add-on’ products you are sold at dealerships such as extended warranties, paint/tyre protection and GAP insurance.
What Valentine’s Day present has the FCA given consumers?
The FCA doesn’t have any powers currently to regulate BNPL, but a former Director of the regulator, Chris Woolard wrote a review which recommends the Government and FCA do start regulating these financial products, given that many online retailers provide options to pay using BNPL products. So in a few years it is likely you will see some big changes in this space. But the first step the regulator has taken is genius really and shows you how much it loves you the consumer. It has used provisions held within the Consumer Rights Act 2015 to assess the fairness and transparency of the terms in BNPL agreements and found some big issues. Essentially the above mentioned BNPL firms have responded by holding up their hands and admitting that their terms are not really that clear and have led to lot’s of people getting charged late payment fees. The big BNPL firms are now voluntarily reimbursing customers that have been charged these fees. So if you happen to have one of these BNPL agreements lying in your inbox or in a cupboard somewhere and you have been charged a late payment fee then do ensure you get your money back! You can read more on this on the FCA ‘s website here.