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'Buy now, pay later' firms banned from backdating interest on money you've already repaid

'Buy now, pay later' firms banned from backdating interest on money you've already repaid

Firms which offer 'buy now, pay later' deals won't be able to charge backdated interest on money that's already been repaid, under new rules the financial regulator says will come into effect from November. 

'Buy now, pay later' deals are often offered by firms which provide catalogue credit, store cards or point-of-sale finance. As part of these deals, the customer is given a promotional period, typically of up to 12 months, where they don't need to make payments and won't be charged interest.

But once this period is over, customers have to start paying interest if they haven't already paid for the item in full. The Financial Conduct Authority (FCA) says over a third of borrowers don't repay in full during the offer period, meaning they have to pay interest.

This interest will typically be charged on the whole amount of the item, from the date it was purchased – even if the customer has already paid back part of the amount by the end of the promotional period.

But from 12 November, firms won't be able to charge backdated interest on money that's already been repaid, in a move which the FCA says will save consumers up to £60 million per year.

What are the new rules?

Here's a quick summary of the changes the FCA has announced:

  • Firms won't be able to charge backdated interest on money that's already been repaid during the promotional period, although they WILL still be allowed to charge backdated interest on money that's still outstanding at the end of the offer period.

    This rule will come into force from 12 November 2019.

  • Companies must give customers better information about 'buy now, pay later' offers, including explaining the method they will use to charge interest if the customer doesn't repay the full amount by the end of the promotional period.

    Businesses will be required to do this from 12 September 2019.

  • Firms must remind customers when their offer periods are about to end, to give customers the chance to repay before they have to start paying interest.

    They will be required to do this from 12 September 2019.

What does the FCA say? 

Christopher Woolard, executive director of strategy and competition at the FCA, said: "Since taking over regulation of consumer credit in 2014, our interventions have made a real difference to consumers, especially to people who use high-cost credit. The changes we are announcing today in the BNPL sector build on these interventions. They are intended to simplify these products and make it easier for consumers to make informed decisions.

"The rules we will be implementing will not only improve the information consumers receive about BNPL offers, but will stop firms from charging backdated interest on sums repaid during the offer period. We expect the overall package of measures will save consumers around £40 million-£60 million a year and tackle the harm we identified in this market. As we have shown, we will intervene where we see harms and we remain vigilant in this and other sectors."