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‘Bumper refunds’ for buy now, pay later customers

Paloma Kubiak
Written By:
Paloma Kubiak

Customers of three buy now, pay later firms may be due late payment fee refunds, the regulator has announced.

Buy now, pay later firms Clearpay, Laybuy and Openpay have voluntarily agreed to refund customers who were “inappropriately” charged despite cancelling their order.

In this instance, the loan repayment should have been cancelled too, but customers were still charged late payment fees or continued paying instalments. For example, customers of Clearpay were incorrectly charged £6.

The regulator, the Financial Conduct Authority (FCA), said this may have occurred due to a delay in the retailer informing the buy now, pay later firm that the customer had cancelled their online sales contract.

If you think you’re affected, you should get in touch with the firm directly.

YourMoney.com has contacted the three firms to ask how many customers are impacted and how money will be refunded.

Clearpay said: “Clearpay upholds high standards in how we communicate to our customers and we constantly review our product communications to ensure that we are as transparent as possible. Following recent discussions with the FCA, there is a very small group of customers who may have incorrectly been charged a late fee because we were not notified of them returning a purchase within a certain time frame.

“We will automatically refund impacted customers that we are able to identify and have a dedicated page on our website for customers who may be impacted. We have also updated some wording in our terms and conditions around returns, refunds and account closures.”

If you have used other buy now, pay later firms (BNPL) and believe you’re also affected by this issue, again contact them directly. Klarna doesn’t charge late payment fees, so refunds aren’t due.

Where customers returned part of their order but were charged late payment fees, the FCA said refunds won’t be given as instalments were still due.

But it added that the instalments should be adjusted to take into account the refunds relating to the returned goods.

Buy now, pay later contracts fairer and clearer

The refund announcement comes as all four firms have also committed to making their contracts fairer and clearer for customers.

Interest-free BNPL schemes are a form of credit and give customers the chance to buy something now and spread the cost. But if the debt isn’t cleared, interest and other charges can soon add up.

Their use quadrupled in 2020 to £2.7bn but not all products are regulated by the FCA, and a separate review highlighted the potential risk of consumer detriment in using this payment option.

The government said it intended for these products to be regulated by the FCA in future, but for now, the firms must comply with consumer protection legislation.

As such, following the FCA study of the firms’ contracts, it said it expects them to review their existing contracts and when drafting new ones, they should include:

  • Terms setting out what happens if a customer cancels the contract for purchases funded by the BNPL loan. Timing and how refunds will be processed should be included.
  • Terms enabling firms to end and/or suspend a customer’s account. Here firms should give advance notice or explain why if no notice given, making sure they are fair and reasonable.
  • Right of set-off terms. Here, firms shouldn’t prevent the customer from being able to deduct money owed to them by the firm from instalments.
  • Continuous payment authority terms. Firms should make it clear how a customer can cancel their continuous payment authority and what impact this has on any outstanding payments due.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Buy now, pay later 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 the BNPL industry adopts high standards in their terms and conditions.

“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.”

‘Bumper payout’ but ‘worrying development’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Buy now, pay later borrowers could be due a bumper payout, after the FCA found some of the rules around late payments fees were unfair. Lenders will also make their contracts fairer and clearer. It’s great news for anyone who was unfairly charged these fees, but it’s incredibly frustrating the FCA is so limited in the steps it can take until it regulates the industry.

“Meanwhile, the cost-of-living crisis means more people risk falling into the buy now, pay later trap. The expansion of services means you can now spread the cost of the supermarket shop. This is a really worrying development, because it means in subsequent weeks or months, you’ll be paying for multiple shops at once. It’s never a good idea to borrow to pay for the essentials, because you’re just storing up trouble for later, and nobody should be buying consumables on credit.”