Buy now, pay later (BNPL) finance providers Clearpay, Laybuy and Openpay have each agreed to refund borrowers who were charged late payment fees, as a result of FCA intervention.

The regulator said it was concerned about a “potential risk of harm” to consumers as a result of the way some of the firm’s terms were drafted.

According to the Woolard Review into the unsecured credit market, the use of BNPL products almost quadrupled in 2020, to £2.7bn.

The government is currently planning to change the law to bring some of the current forms of unregulated BNPL products into FCA regulation. However, despite the type of BNPL agreements offered by these firms not yet being regulated, the FCA used the Consumer Rights Act to assess the transparency of the terms. 

As a result, the three BNPL finance providers, as well as Klarna, are to make their terms surrounding issues such as contract cancellations and continuous payment authorities more fair and easier to understand.

In the cases of Clearpay Laybuy, and Openpay, each has also agreed to voluntarily refund customers who have been charged late payment fees, “in specific circumstances”, the FCA stated.

FCA executive director of consumers and competition, Sheldon Mills, said: “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 that 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.”

Hargreaves Lansdown senior personal finance analyst, Sarah Coles, added that the changes to BNPL terms will be “great news” for anyone who was unfairly charged these fees.

However, she also warned: “It’s a fraction of what the FCA could achieve if it wasn’t having to reach across the divide of regulation, and work with a couple of blunt instruments while the enormous potential of the full toolbox remains locked.

“While it’s waiting to regulate the industry fully later this year, the FCA used the Consumer Rights Act to assess whether the contracts issued by four major players were fair and clear. Three companies, Clearpay, Laybuy and Openpay, will refund some borrowers, after the FCA discovered late payment fee rules on cancelled orders were unfair.

“All four of the firms also agreed to amend other terms the FCA considered unfair, including the lender’s right to suspend an account without notice or restrict access in a way that could have been used unreasonably.

“All of these are hugely positive changes, but it’s incredibly frustrating that the FCA is so limited in the steps it can take until it regulates the industry.”

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