Tech & Sourcing @ Morgan Lewis


The UK Financial Conduct Authority (FCA) released a statement on February 14 confirming a series of changes to potentially unfair contract terms that had been agreed with four of the largest providers of Buy Now, Pay Later (BNPL) products operating in the United Kingdom.

Although BNPL products are not currently regulated by the FCA, the FCA was able to use its investigatory powers under the Consumer Rights Act 2015 (CRA) to assess the fairness and transparency of the terms. The FCA was concerned that the terms used by the BNPL firms failed the fairness and transparency requirements of the CRA, leading to a potential risk of harm to consumers.

Key Concerns

The FCA focused on the following:

  1. Terms setting out what happens if a consumer cancels the contract for purchases funded by a BNPL loan: Consumers who returned goods had to continue to pay installments until the retailer confirmed the goods had been returned and had refunded the BNPL firm. The FCA was concerned that consumers were often stuck paying installments they shouldn’t have been charged or incurring late fees for not paying installments after they had returned their goods. These loans should have been terminated as soon as consumers exercised their right to cancel the sales contract (in accordance with Regulation 38(1) of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs)).
  2. Terms enabling the firms to terminate and/or suspend a consumer’s account or access to services: The FCA was concerned that these contracts included terms that could be used to terminate or suspend a consumer’s account for any reason or restrict a customer’s access to their account unreasonably and without notice. This was deemed to be too broad a right by the FCA.
  3. Right of set-off terms: The FCA was concerned that the terms relating to a consumer’s right to set off money owed to it by a BNPL firm could be used to exclude this right inappropriately.
  4. Continuous payment authority terms: When a consumer provides a BNPL firm with their debit or credit card details and the necessary consent to take money from their account on a regular basis, this creates a continuous payment authority. The FCA was concerned that the terms were not clear enough on how a consumer could effectively cancel their continuous payment authority.

The four BNPL firms reviewed as part of this process have all agreed to change terms in their consumer contracts to make them fairer and easier for consumers to understand and to better reflect how they use the products in practice.

FCA Executive Director of Consumers and Competition Sheldon Mills said:

Buy-Now Pay-Later has grown exponentially. We do not yet have powers to regulate these firms, but we do have powers to review the terms and conditions of consumer contracts for fairness, and have acted proactively to ensure that the BNPL industry adopts high standards in their terms and conditions.

The four BNPL firms we have worked with have all voluntarily agreed to change their approach. We welcome this and hope that the rest of the industry will now follow.

Next Steps

The UK government plans to change the law to bring some of the current forms of unregulated BNPL products into the scope of FCA regulation. The FCA will consult on rules for this sector after the UK government has decided which firms and activities will be regulated.