The Financial Conduct Authority (FCA) has confirmed plans to introduce regulation in the Buy Now Pay Later (BNPL) market, effective 12 November 2019.

With a view of saving consumers around £40-60m per year, the FCA is targeting firms who have been charging backdated interest on money that has been repaid by the customer during the BNPL period.

Firms will be required to provide better information on the BNPL offers, reflecting both the risks and benefits of the product in a more balanced manner. In addition, firms will be required to prompt consumers when the offer period is about to end – giving them time to repay the credit before incurred interest.

Current BNPL schemes typically last up to 12 months, during which consumers do not have to make payments and are not charged interest. However if the customer fails to repay the full amount within this period, then interest will be charged from the date of purchase. Consumers who repay part but not the entire amount owed are still charged backdated interest on that part.

“Since taking over regulation of consumer credit in 2014, our interventions have made a real difference to consumers, especially to people who use high-cost credit,” said Christopher Woolard, executive director of strategy and competition at the FCA.

“The changes we are announcing today in the BNPL sector build on these interventions.  They are intended to simplify these products and make it easier for consumers to make informed decisions.

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“We expect the overall package of measures will save consumers around £40-60 million a year and tackle the harm we identified in this market.  As we have shown, we will intervene where we see harms and we remain vigilant in this and other sectors.”

Sean Kulan, consumer credit sector lead at Huntswood, added: “The ability of firms to charge backdated interest has been a particular bone of contention, with many customers unaware of the ability of firms to retrospectively apply such charges against the entirety of the credit line. The regulator will now be ensuring that firms are implementing the changes and that they are being properly applied.

“Regulatory compliance is clearly a priority, so lenders should be checking that they have appropriate consumer safeguarding measures in place, while also revaluating their internal policies and procedures to ensure transparency. Taking these necessary steps will protect consumers, particularly those that are most vulnerable.”