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Buy Now, Pay Later… and watch out for those unfair fees!

The rise of the BNPL generation

The UK market for Buy Now, Pay Later (BNPL) services almost quadrupled to £2.7 billion in 2020, according to the Woolard Review. The schemes are used to help spread the cost of online consumer purchases through informal credit agreements – users can pay within a selected time period or in monthly instalments. 

In 2021, a staggering 42% of 16-24-year-olds in Britain used these services, of those 57% used the services for fashion purchases and 47% tech. With today’s fast-fashion and tech-driven culture, the use of BNPL schemes makes it easier – and much more tempting – for the younger generation to get themselves into unnecessary debt.

The vast increase of BNPL usage has resulted in a 200% rise in 16-24-year-olds contacting the Financial Ombudsman for debt-based financial help within the last five years. Contact over credit services, such as credit cards, also rose by 210% during this period. 

What’s the catch?

A report released by the Financial Conduct Authority raised concerns of BNPL firms taking unfair payments from their customers, due to terms in their contracts. Although the FCA do not regulate BNPL firms, they used the Consumer Rights Act to assess the fairness of such providers.

They found that terms included in BNPL contracts required customers who had returned items to continue to pay instalments until the retailer had confirmed the return. Concerns were risen over such terms, as many customers experienced delays regarding correspondence between the retailer and BNPL firm – people continued to pay for items weeks after they had processed the return. 

The FCA argued that ‘the loan agreement should have been terminated in accordance with regulation 38(1) of the Consumer Contracts Regulations 2013’ once the customer had returned goods to the retailer – though we know this was not the case. 

Furthermore, in some circumstances, consumers may have continued to pay instalments, or were even charged late fees for not paying instalments, long after the loan agreement should have been cancelled. 

FCA Outcomes

As we know, users of the BNPL services find themselves in increasing debt, mainly of the younger generation – but by charging unfair fees and providing unclear terms, debt could continue to pile up in more ways than simply purchasing a new outfit. 

Concern for these terms with the FCA report has resulted in the BNPL companies agreeing to amend their terms, now making it a contractual right for the customer to pause or suspend payments once the refund process has begun. 

One of the main takeaways included the firms agreeing to offer refunds to consumers who have been wrongly charged late payment fees in the past – the FCA are recommending contacting the firms directly for your potential refund!

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