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'Buy now, pay later' firms, and retailers offering their services, warned not to mislead shoppers in adverts - here's what to watch out for

'Buy now, pay later' (BNPL) firms - and retailers promoting their services - have been warned by the financial regulator not to mislead shoppers in adverts and promotions. Here's what to watch out for and what you need to consider before using a BNPL provider.  

The Financial Conduct Authority (FCA) has today said it is concerned shoppers could be being misled, and that it's seen BNPL adverts on websites and social media, including posts by social media influencers, which may breach its rules.

Adverts must not emphasise the benefits of BNPL without "fair and prominent" warnings of the risks, which include taking on debt you can't repay, the consequences for missed repayments, the potential impact to your credit file, and any information about charges (for examples, late fees).  The FCA also  expressed concern that adverts could encourage impulse buying. 

The regulator has put its concerns in writing to BNPL firms, as well as to trade body the British Retail Consortium. It's warned that it will consider enforcement action if it finds adverts have breached its rules.

See our  Buy now, pay later guide for more info on how it works and what to look out for. If you're struggling with debts, see our  Debt problems and help available guide. 

Buy now, pay later is currently unregulated, but the rules are set to change

With BNPL, when you make a purchase at a shop till or online checkout, the BNPL firm pays the retailer for you. You then agree to pay the BNPL firm back over a weeks or months, meaning you can spread your shopping costs. It's interest-free, but:

  • Miss a repayment and you risk being charged late fees - and it could hurt your credit file. This in turn could make it harder for you to take out credit again in future. Conversely, successful on-time repayments will positively impact your credit report. Use Klarna, for example, and this information will be reported to credit reference agencies Experian and TransUnion. Laybuy, meanwhile, shares data with Experian.

  • Unlike spending on a credit card, you aren't protected by section 75 of the Consumer Credit Act. Meaning it's unlikely you'll be able to get a refund if an item turns up faulty - see more on this in our Buy now, pay later guide.

  • You may not be able to take complaints to the Financial Ombudsman Service. If it's about the BNPL provider itself. (alongside others) has been calling for BNPL to be regulated so that the same or similar rules that apply to other forms of debt also protect people using BNPL. We have recommended that regulation - once introduced - must cover areas including:

  • The advertising and promotion of BNPL, so it's clear that it is a debt. 
  • Clear information on the consequences of borrowing and missed payments. 
  • And that like when using a credit card, section 75 of the Consumer Credit Act must apply.

The Government said it plans to draft legislation to regulate BNPL firms towards the end of this year. But the new rules are unlikely to take force until late 2023 at the earliest because the FCA will need to consult on the proposals. 

Traditional forms of credit still offer better protection than BNPL

BNPL is a form of credit, so it makes sense to consider whether BNPL or a more traditional form of credit, such as a 0% credit card or 0% overdraft, is better for you. Check out our Best 0% Credit Cards guide and our Top Current Accounts guide, if you're overdrawn, for a full break down.

If you choose to borrow through unregulated BNPL firms, as outlined above you'll forfeit any Section 75 Protection and a right to complain to the Financial Ombudsman. You'll also have a much shorter repayment window than if you were to borrow through a credit card or overdraft.

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