The UK financial regulator has warned businesses that offer buy now, pay later products against using misleading advertising, saying they must comply with financial promotion rules.
“Unauthorised firms might be committing a criminal offence if they do not have an FCA-authorised firm approve their financial promotions,” the Financial Conduct Authority said on Friday.
“Authorised firms selling unregulated or exempt BNPL products must comply with the relevant rules unless an exemption applies. This includes that their BNPL financial promotions must be clear, fair and not misleading.”
The statement highlights the growing concerns facing the fast-growing consumer credit sector, popularised by companies such as Sweden’s Klarna, formerly Europe’s most valuable private fintech group.
Buy now, pay later allows users to defer or split payments into instalments, without charging interest if payments are made on time. Some companies have also done away with late fees in the UK, including Klarna.
The FCA said it had seen ads, including posts by social media influencers, that promoted the short-term credit without warning about the risks, such as taking on unaffordable levels of debt and the consequences of missed payments.
The sector was a beneficiary of the ecommerce boom early in the pandemic but there are questions around how well providers ensure customers can afford the loans they offer, and whether they encourage unnecessary spending.
These fears have been heightened by the cost of living crisis. Half of those with buy now, pay later loans in the UK find it hard to keep up with household bills and credit repayments, according to polling commissioned by debt advice charity StepChange, compared with a general average of 30 per cent.
“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,” said Sheldon Mills, FCA executive director of consumers and competition.
Regulators have previously criticised providers’ advertising. In December 2020, the Advertising Standards Agency banned several of Klarna’s advertisements on the grounds that they “irresponsibly encouraged the use of credit to improve people’s mood”, and introduced guidelines requiring all providers to make clear that BNPL is a type of debt.
Klarna said it had actively and substantially changed its influencer and advertising policy and invested in KlarnaSense, a product designed to encourage responsible spending.
The ASA has also tightened its stance on the financial sector more generally. This year the advertising watchdog warned HSBC about using adverts to greenwash its reputation.
Buy now, pay later is currently unregulated in the UK. In June the government set out its plans to regulate the sector, which would include strengthening financial promotion rules.
However, new rules are only likely to come into force by 2023 at the earliest.
The FCA this month published stricter rules for marketing “high risk” investments — such as peer-to-peer loans and private company shares — responding to what the regulator sees as a wave of risk-taking by consumers following the Covid-19 pandemic.
It is also expected to take over the policing of advertisements for cryptocurrencies, after the Treasury said in January that it would pass new legislation to place crypto ads within the financial watchdog’s remit.