As the UK’s cost-of-living crisis develops, Britain’s financial watchdog warned firms offering “buy now, pay later” loans spell out spell clearly the risk of late repayments.
Klarna was the first company to offer on-the-spot, interest-free, short-term loans for buying commodities like garments.
Lenders make money by taking a percentage of what they help shops sell, and banks are jumping in to service customers who can’t acquire credit cards or fail credit checks.
The Financial Conduct Authority can intervene in how BNPL loans are advertised.
In letters released on Friday, the FCA told BNPL companies and the British Retail Consortium that ads for “buy now, pay later” focused too much on benefits and not enough on risks.
Some BNPL lenders demand late fees, and nonpayment might hurt credit.
The commission said it would employ criminal and regulatory powers to stop illegal promotions.
Unauthorized firms may be committing a crime if they don’t get an FCA-approved financial promotion.
The FCA has revoked or altered 4,226 promotions this year.
Energy bills and the highest rate of inflation in 40 years are making it hard for people to pay for things, which makes BNPL products a possibility.
“Consumers are having to make difficult decisions about their money and how they pay for goods and services,” said Sheldon Mills, FCA’s executive director of consumers and competition.
Britain will consult on introducing BNPL affordability inspections.
The FCA told BNPL operators Clearpay, Klarna, Laybuy, and Openpay to modify their contracts in February. British consumer rights law was used.
