The Financial Conduct Authority (FCA) is set to clamp down on the ‘buy now, pay later’ (BNPL) market.
The FCA has announced that they will be banning backdated interest on any repayments that have already been made, saving consumers in the UK up to £60 million per year.
The changes are set to come into effect on 12 September 2019, with the aim of protecting the rights of consumers. The rules that prevent backdated interest being charged will come into force on 12 November 2019.
BNPL credit offers are offered by a wide range of companies, including on store cards, catalogue credit and retailers who offer finance at the point of sale.
There is often a promotional period, often 12 months, in which customers are not obligated to make any payment and are not charged interest. However, under new rules, firms must be clearer about the offer and are required to provide consumers with better information, including the risks and benefits of the product.
Firms will also have to give customers prompts to remind them that the offer period is due to end soon, giving them the best opportunity to repay any credit before incurring interest.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: “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 to £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.”