More protection for ‘buy now pay later’ customers
BNPL borrowing includes catalogue credit, store cards and retailers that offer finance at the point of sale, either in store or online.
The Financial Conduct Authority (FCA) said the new rules, which will be in force by 12 November, will save consumers around £40-60m a year.
Under the new measures, retailers will not be allowed to charge backdated interest on amounts of money that have been repaid during the BNPL offer period.
They will also have to present BNPL offers in a clear and balanced way, give people adequate explanations of the costs and potential negative consequences, and prompt people when the zero per cent interest period is due to expire to give them chance to repay the balance in full before interest is charged.
Rules don’t go far enough
However, Citizens Advice believes the new rules will not stop people being hit by unexpected costs.
Chief executive Gillian Guy said: “One of the problems we see is how interest is backdated at the end of the “interest free” period. People can get into trouble as they don’t realise charges can be applied in this way
“The new rules won’t stop people being hit by these unexpected costs on unpaid amounts. To better protect people, the FCA should go further and only allow firms to charge interest once the promotional period ends.”
The charity said it helped over 25,000 with problems due to catalogue and mail order products last year. These debts are the second most common high-cost credit issue, after overdrafts, Citizens Advice helped people with.
Debt charity StepChange said BNPL services were a a factor driving both store card and catalogue debts, which around 12% and 34% of their clients have respectively.
StepChange head of policy, Peter Tutton, said: “The FCA’s changes are modest but welcome, though whether they will fully achieve the objective we would like to see that credit should always be “bought rather than sold” remains questionable.
“When people’s eyes are on the goods they want to buy, and the credit is being offered through the retailer, it is particularly important that the nature of the credit product being dangled as the means to the desired end is made unequivocally clear.”