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What has happened?

In August 2022, in its Dear CEO letter, the FCA warned firms and merchants offering Buy Now Pay Later (BNPL) products that, although some agreements are unregulated, financial promotions for all BNPL products must comply with the FCA financial promotions compliance. Unauthorised firms might be committing a criminal offence if they do not have an FCA-authorised firm approve their financial promotions compliance.

The FCA asked firms to draw the letter to the attention of their Boards and emphasised that it expects Boards to consider the issues it raises and approve the action taken in response.

What are the key points of the letter?

Authorised firms selling unregulated or exempt BNPL products must comply with the relevant rules unless an exemption applies. Their BNPL financial promotions must be clear, fair, and not misleading.

The FCA is concerned that consumers could be misled if BNPL financial promotions do not comply and it has seen promotions on websites and social media, including posts by social media influencers, which may breach FCA rules, for example, by emphasising the benefits of BNPL products without including fair and prominent warnings of any risks to customers, such as:

• the risk of taking on debt that customers cannot afford to repay,
• the consequences of missed payments,
• any other adverse consequences such as the impact on the customer’s credit file, and
• information about when charges become payable

The FCA held a roundtable with BNPL providers some time ago to discuss upcoming regulations and called on such firms to do more to support borrowers in financial difficulty, including providing signposting to money guidance and debt advice. The Dear CEO letter emphasised that the Consumer Duty will apply to these issues, and concluded on this point by stating;

As consumers are affected by the rising cost of living, firms will see a wider group of consumers in financial difficulty, some of whom will be in vulnerable circumstances. Firms approving or communicating financial marketing need to ensure they have relevant expertise and understanding of our expectations and the consumers they are reaching with their financial promotions. While we implement the Duty, we will use existing powers against firms where consumer outcomes need to improve.

The FCA has emphasised that it is continuing to engage with BNPL providers and is monitoring the market to ensure that its expectations are met. It has confirmed it will use criminal and regulatory enforcement powers if it sees promotions that do not comply. So far this year, FCA action against firms that have breached its rules has led to 4,226 promotions in total being changed or withdrawn. This was emphasised in November 2022, when the FCA issued its financial promotions data for Q3 2022, and stated, in relation to BNPL promotions;

the FCA’s intervention [during the data period] resulted in 66 Buy Now Pay Later (BNPL) promotions from one firm across various social media platforms being amended or withdrawn. It said the adverts did not give fair or prominent risk warnings and were misleading about fees.

How can we help you?

If you’d like to know more about how we can help you with your BNPL financial promotions compliance or Consumer Duty arrangements, or any other regulatory compliance issues, our specialist team is here to help.

Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.