LONDON (Reuters) - Britain’s Financial Conduct Authority said on Wednesday it will ban firms from charging interest on “buy now pay later” (BNPL) credit to save consumers up to 60 million pounds a year.
The FCA said the rules will cover a range of companies who offer BNPL credit, including catalogues, store cards and retailers who offer finance at the point of sale.
BNPL usually includes a one-year offer period, during which customers do not have to make payments and are not charged interest. If the consumer does not repay the entire amount within this period, interest is charged from the date of purchase.
Consumers who repay part but not all of the amount owed are charged backdated interest on that portion, with typically more than a third of consumers not repaying within the offer period.
The FCA said that from November firms will be banned from charging backdated interest on money that a customer has already repaid during the offer period.
It is the latest intervention by the FCA to tackle high cost credit that affects vulnerable consumers in particular. It has already taken steps in the payday loan, rent-to-own and overdraft markets.
“We expect the overall package of measures will save consumers around 40-60 million pounds a year and tackle the harm we identified in this market,” Christopher Woolard, the FCA’s executive director of strategy and competition, said in a statement.”
“As we have shown, we will intervene where we see harms and we remain vigilant in this and other sectors.”
Firms will also have to provide better information to consumers about BNPL offers, and give “prompts” to remind consumers when an offer period is about to end.
Credit checker ClearScore said the changes will help consumers make better choices as BNPL schemes can appear very attractive but carry eye-watering interest rates, fees and charges.
“They are instantly available at store counters, which means people don’t often have time to consider their options or look at the terms and conditions before taking them out,” ClearScore said.
Reporting by Huw Jones, editing by Louise Heavens