FCA warns BNPL lenders their adverts must comply with its regulations

Britain’s financial watchdog has warned buy now pay later lenders such as Klarna that their adverts must comply with standard financial promotion rules.

The Financial Conduct Authority is concerned that some BNPL lenders are misleading consumers through their advertising, which can fail to properly inform borrowers of potential risks like unaffordable debt and the consequences of missed payments. 

In a public statement on Friday, the regulator highlighted the role of social media in the distribution of BNPL promotions as well as that of so-called influencers, which can contribute to breaking its rules. 

FCA has issues a notice to BNPL firms that adverts for unregulated promotions must still comply with rules. 

Many BNPL firms sit outside of the FCA’s authority, but the regulator told the sector that even unauthorised companies may be committing a criminal offence if they don’t have an authorised firm approve their financial promotions.

Firms selling unauthorised products, must still comply with FCA advertising rules unless an exemption applies – meaning their promotions must be clear, fair and not misleading.

BNPL products have become increasingly popular in recent years, with 20.2million people in the UK having difficulty accessing credit from mainstream lenders, according to PwC.

In June, the Government confirmed plans to require BNPL lenders to carry out affordability checks, ensuring loans are affordable for consumers.

Under the plans, financial promotion rules will be amended to ensure BNPL advertisements are fair, clear, and not misleading, while lenders offering the product will need to be approved by the FCA. 

In its statement the FCA highlighted BNPL adverts seen on websites, social media and promoted by social influencers that it says may breach its rules.

For example, adverts emphasising the benefits of BNPL products without fair and prominent warnings of any risks to customers, such as: taking on unaffordable debt, missed repayments or impact on a customer’s credit file.

The regulator has said it will use criminal and regulatory enforcement if it sees promotions that do not meet its standards.

Sheldon Mills, executive director of consumers and competition at the FCA, said: ‘As we face a cost-of-living crisis, consumers are having to make difficult decisions about their finances and how they pay for goods and services.

‘Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely and properly informed decisions. It is vital that adverts are clear, fair and not misleading.’ 

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, added: ‘Social media influencers flogging Buy Now Pay Later loans may be encouraging people to take on debts they don’t understand. 

‘At a time when rising prices have pushed so many people’s finances to the edge, piling up unaffordable levels of debt risks pushing them into the abyss. The financial watchdog has issued a warning to social media influencers and firms about the dangers of breaking the rules around advertising these products.

‘With so many people under intolerable financial pressure, there’s a risk that more of them hunt for any way to make ends meet. Buy Now Pay Later seems like a cost-free solution, but if people don’t understand what they’re getting into, they could rack up unaffordable debts and face serious consequences.

‘Buy Now Pay Later isn’t yet regulated, but adverts and marketing for the products is. It means they need to be approved, and have to include prominent risk warnings, covering things like the risk of taking on unaffordable debt, the consequences of missing payments, or any charges.’

This post first appeared on Dailymail.co.uk