FCA publishes unfair contract terms guidance for Buy Now, Pay Later firms

On 14 February 2022, the FCA published a statement providing guidance for buy-now-pay-later (BNPL) firms in relation to their consumer contract terms.

All firms must comply with consumer protection legislation, which the FCA has powers to enforce, including the Consumer Rights Act 2015 (CRA) for contracts entered into from 2015. The Government previously issued an announcement that it intends for these products to be regulated by the FCA in the future, but ahead of this the FCA has provided the following guidance as to what should be included within BNPL contracts to align with the CRA:

Firms should ensure that their contract terms:

• Comply with the fairness and transparency requirements of the CRA, and with corresponding requirements under the Unfair Terms in Consumer Contracts Regulations 1999 for contracts entered into between 1 July 1995 and 30 September 2015. Firms should note that an unfair term is not binding on the consumer under section 62(1) of the CRA. Additionally, if a term could have different meanings, the meaning that is most favourable to the consumer is to prevail under section 69(1) of the CRA. The FCA draws firms’ attention to its webpages on unfair contract terms which contain various materials to help firms in considering the fairness and transparency of their consumer contracts.
• Where applicable, take into account regulation 38(1) of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs), which states that ‘If a consumer withdraws an offer to enter into a distance or off-premises contract, or cancels such a contract under regulation 29(1), any ancillary contracts are automatically terminated…’

Firms that charge late payment fees should also review the circumstances in which they have previously charged these fees to consumers for not paying instalments after the loan agreement should have been terminated. We expect firms to provide redress where they find they have charged these late payment fees inappropriately. Firms should respond swiftly to any consumer who contacts them about late fees incurred in circumstances similar to those specified.

The FCA has identified four specific types of terms which firms should consider when reviewing their existing contract terms and when they draft new ones include:

1. Terms setting out what happens if a consumer cancels the contract for purchases funded by a BNPL loan.

Consumers can exercise their statutory rights under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs) to cancel the online sales contract. When drafting this type of term, all firms should:

• take into account the CCRs, in particular the cancellation provisions;
• clearly set out the timing and how they will process the refunds (fully and partially) when the consumer cancels and/or returns goods to the retailer; and
• consider including any facility they provide to consumers to pause or suspend payments, in situations where the consumer cancels or returns goods, as a contractual right.

2. Terms enabling firms to terminate and/or suspend a consumer’s account or access to services.

When drafting this type of term, all firms should:

• make it clear when they will provide advance notice to consumers if they intend to terminate and/or suspend a consumer’s account or access to services;
• explain the very limited circumstances when they might terminate and/or suspend a consumer’s account or access to services without giving advance notice, ensuring these circumstances are fair and reasonable; and
• make it clear to consumers what the consequences are if they terminate/suspend a consumer’s account and ensure those consequences are reasonable (this includes consumers not being subject to more onerous payment terms where the firm terminates the contract without any fault on the consumer’s part).

3. Right of set-off terms.

When drafting this type of term, firms should not prevent the consumer, who has such a right, from being able to offset/deduct money owed to them by the firm from instalments.

4. Continuous payment authority (CPA) terms.

When drafting these terms, firms should make it clear how a consumer can cancel their CPA and what impact this has on any outstanding payments due.

For further information regarding the regulatory approach being taken in respect of the BNPL sector, please see our previous updates.