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UK FCA issues two warning letters to firms offering Buy-Now-Pay-Later (BNPL)

  • United Kingdom
  • Commercial and IT
  • Payment systems and digital commerce
  • Financial services - Payment services
  • Financial services - Retail finance


On 19 August, the FCA published two letters warning firms offering Buy-Now-Pay-Later products (BNPL) that although some BNPL agreements may be unregulated, firms must still ensure that their financial promotions meet applicable regulatory requirements.  A ‘Dear CEO’ letter to authorised firms and a letter to the British Retail Consortium regarding unauthorised firms.

The FCA has made clear that unauthorised lenders offering BNPL products may be committing a criminal offence if they don’t have an FCA-authorised firm approve their financial promotions for compliance with FCA requirements prior to use (unless a relevant exemption applies).  They have also warned authorised firms that their BNPL financial promotions must comply with CONC 3 and must therefore be ‘clear, fair and not misleading.’  Unauthorised retailers may also need to have their financial promotions approved by an authorised firm unless they meet the exemption in article 15(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and their promotion is used to introduce the customer to an authorised firm offering BNPL to cover the cost of purchase.

The letters have been sent because the FCA is concerned that customers could be misled by the content of some BNPL financial promotions used on websites and in social media, including posts by social media influencers.  In particular, the FCA considers that the content of such material does not comply with their rules because it is not ‘balanced’ in that it promotes the benefits of BNPL without a fair and prominent indication of the relevant risks to consumers. The FCA has cited the following as examples of risks:

  1. the risk to those consumers of taking on debt that they cannot afford to repay;
  2. the consequences of missed payments; and
  3. information about when charges are payable, for example if a payment is missed.

This recent action further demonstrates that the FCA will not wait for BNPL to be regulated before it addresses any risks that it considers have the potential for poor customer outcomes.  This is the second time in less than a year that the FCA has taken action in this sector using existing legal and regulatory requirements. It is no coincidence that these warnings have been issued at a time where BNPL has become increasingly popular yet many consumers are struggling to cope with the cost of living crisis.  It is clear that the FCA wants BNPL providers to have regard to this current crisis and ensure that they are doing more to support consumers, including those who may be in financial difficulty. This includes ensuring that consumers are equipped with the right information at the right time to make effective, timely and properly informed decisions.

We can expect to see more from the FCA across a range of sectors as the cost of living crisis worsens and firms implement the FCA’s new ‘Consumer Duty’. It is no surprise that the FCA has referred to the ‘Consumer Duty’ in the ‘Dear CEO’ letter sent to authorised firms given the importance of the consumer understanding outcome. The policy intent behind this outcome was also referred to by Sheldon Mills when the BNPL letters were published last week.

It is important that lenders and merchants offering BNPL now take action to review the compliance of their financial promotions against the content of these letters and update them where required. Firms should also have regard to the ASA’s guidance on marketing material relating to deferred payment services which was published in December 2020. The FCA will be actively monitoring compliance across the sector and will consider whether to take further enforcement action where identifies non-compliance.

For further background on the UK's journey to regulating Buy-Now-Pay-Later, you can listen to our podcast series.

To find out more about how the FCA's warning letters may apply to your business and how to ensure compliance, please get in touch: