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February 2022BNPL Firms to Refund Some Late Payment Fees After Regulator Crackdown
Three major buy now pay later (BNPL) providers have agreed to refund late fees paid by some customers, after the Financial Conduct Authority (FCA) raised concerns about their unclear terms and conditions.
Following the regulator’s intervention, Clearpay, Laybuy, and Openpay will voluntarily refund shoppers who cancelled a transaction paid for using BNPL but were still charged late payment fees.
The FCA said the practice of charging late fees for cancelled BNPL loans was “inappropriate” and that the plans should have stopped immediately when the transaction was cancelled. But the regulator said late fees are still permissible when shoppers partially returned the orders placed through BNPL.
The three providers have not specified how many shoppers will be refunded, the average refund, or the timeline for payments.
Clearpay said it has 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.” It will contact those customers about automatic refunds.
Clearpay also said it has introduced a new feature called “Pause and Notify” that allows customers to push back payment deadlines by up to two weeks without penalty while they wait for retailers to refund them.
Clearpay usually charges a late fee of £6. This fee can only be charged once for orders under £24 but can be levied repeatedly for orders over that amount, for a maximum penalty of 25% of the order’s cost or £36, whichever is less.
Laybuy’s standard late fee is also £6. It can be charged twice per missed instalment—so for a maximum penalty of £12 per instalment. If you’re late on three instalments, the maximum you can be charged is £36.
Openpay’s late fee is £7.50, charged two days after your payment is due and then again on day 10 if you still haven’t paid.
The FCA has also required the three firms—and rival Klarna, which doesn’t charge late fees—to update their consumer contracts to make them “fairer, easier for consumers to understand and to better reflect how they use them in practice.” The four providers will improve their terms and conditions around key issues including contract cancellations, continuous payment authorities, and late payment fees.
The FCA doesn’t yet have the power to regulate BNPL providers. The government intends to give oversight of the sector to the FCA and in the autumn began consulting on proposed regulations, including the requirements that providers conduct creditworthiness assessments and treat borrowers in arrears according to a standard set of guidelines. This will bring BNPL products in line with other forms of consumer credit such as credit cards and loans.
Until then, the firms are still bound by the Consumer Rights Act 2015 and that’s how the FCA assessed the “fairness and transparency of the terms” of these four firms. The FCA said it acted to prevent consumer harm and believes its intervention will result in “good outcomes for consumers.”
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 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."
Consumer champion Citizens Advice welcomed the FCA’s action. Matthew Upton, director of policy at the charity, said: “Shoppers have been left unprotected and ill-informed during the meteoric rise of the Buy Now Pay Later sector. Our real fear is that many people don’t understand what they are signing up to, or the consequences if things go wrong.
“We welcome this intervention by the FCA, and hope this sets the tone for its wider overhaul of the sector. Protecting consumers must underpin the long-awaited regulation of Buy Now Pay Later.”