FCA warns firms about misleading adverts

The Financial Conduct Authority today warned buy now pay later (BNPL) firms about misleading adverts.

The FCA is concerned consumers could be misled if BNPL financial promotions do not comply and has seen financial adverts on websites and social media, including posts by social media influencers, which may breach FCA rules. For example, adverts emphasising the benefits of BNPL products without fair and prominent warnings of any risks to customers, such as:

• the risk of taking on debt that customers cannot afford to repay
• the consequences of missed payments
• any other adverse consequences such as the impact on the customer’s credit file
• information about when charges become payable

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: ‘As we face a cost-of-living crisis, consumers are having to make difficult decisions about their finances and how they pay for goods and services.

‘Firms need to ensure consumers, particularly those in vulnerable circumstances, are equipped with the right information at the right time, so they can make effective, timely and properly informed decisions. It is vital that adverts are clear, fair and not misleading.’

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Adverts promoting BNPL schemes can be as clear as mud. The worry is an increasing number of people are using such schemes without having a clear understanding of the key considerations.

“Many people are still unaware that BNPL schemes are a form of credit and are guilty of skim reading the T&Cs or simply ticked a box to say they had read them. Customers can be referred to debt collectors and their credit scores could be tarnished if they miss payments.

“While people of all ages are not immune to the allure of such schemes, they are often targeted at younger generations through advertising on Instagram and other social media platforms – via influencers in some cases. The increase in the cost-of-living risks even more people turning to BNPL schemes to help tide them over. You can now buy essential groceries through some BNPL services which is particularly disconcerting. It is never a good idea to borrow to pay for essentials – it is a shortcut to unmanageable debt.

“BNPL schemes are clearly giving the regulator a lot to think about. The issues on the table are a reminder of the desperate need for good financial education, in schools and beyond, and most pupils are still not getting enough access to these crucial life skills.”