The Financial Conduct Authority has forced Paypal and retailer QVC to amend “potentially unfair” terms in their buy-now-pay-later (BNPL) contracts today as it tightens the screws on the sector ahead of a formal clampdown.
In a statement today, the watchdog said it has seen a “significant increase” in the use of buy-now-pay-later products and had moved to rebuke Paypal and QVC over the contracts customers sign when using products.
The regulator said it was concerned that Paypal and QVC customers “were at risk of harm because of how some of the contract terms were drafted” and the two companies had since “voluntarily” made changes.
“While the FCA does not have regulatory oversight over BNPL products, it is determined to protect consumers using financial services where it can,” said Sheldon Mills, the FCA’s executive director of consumers and competition.
Although BNPL products still sit outside the FCA’s remit, the regulator has reined in a number of companies under the Consumer Rights Act, which allows it to police the promotion of financial products to consumers.
The move marks the latest offensive from the regulator after it moved to clip the wings of a number of companies last year on financial promotion grounds.
City A.M. revealed last summer that officials had also threatened bosses with jail time if they failed to get their marketing materials signed off by formally regulated individuals.
The sector remains unregulated despite a Treasury-commissioned review in 2021 recommending “urgent” action to bring it within regulation.
Among the measures set out by the Treasury earlier this year were firmer credit checks on borrowers and expanding the remit of the City’s complaints watchdog, the Financial Ombudsman Service, to allow shoppers to dispute claims.
However, ministers have reportedly kicked this into the long grass amid fears fintech companies would rein in their investment in the UK.
Anxieties around the sector have been mounting over the past year as Brits turn to borrowing amid a cost-of-living crunch.
Research from the FCA today found there has been a surge in the use of BNPL products over the past two years.
Over a quarter of UK adults used BNPL at least once in the last six months of 2022, up from 17 per cent in the first half of the year, the FCA found.
The regulator found that frequent users of BNPL are more likely to be in financial difficulty.
Paypal spokesperson said: “As a responsible lender, PayPal voluntarily made changes in July 2023 to a couple of legal terms and conditions relating to PayPal Pay in 3.
“We have worked closely with the regulator over these matters and have now agreed an undertaking with it. This will give further clarity to customers who took out Pay in 3 loans under the old terms.”
QVC was contacted for comment.