CONSUMERS will save as much as £60 million a year under new rules covering the buy-now-pay-later (BNPL) market which are being introduced by the Financial Conduct Authority (FCA).
The changes will include banning firms from charging backdated interest on money the consumer has paid during the BNPL offer period and will come into force by November 12.
They are designed to reduce the harm experienced by consumers who buy various products using such credit offers.
Among firms that offer BNPL are catalogue shopping, store cards and retailers who offer finance at the point of sale, which can be in-store or online.
The FCA said these offers tend to provide a promotional period, typically up to 12 months, during which customers do not have to make payments and are not charged interest.
However, if the consumer does not repay the entire amount in this period, interest will usually be charged from the date of purchase.
Consumers who repay part, but not all, of the amount owed are still charged backdated interest on that part. Typically, more than a third of consumers do not repay within the offer period, incurring interest charged from the date of purchase.
The FCA proposals confirmed yesterday mean firms cannot charge this backdated interest and have to provide more balanced information to customers about BNPL offers, reflecting the risks as well as the benefits.
Firms must give customers prompts to remind them when the offer period is about to end, so they are more likely to repay the credit before they incur interest.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “The changes we are announcing today in the BNPL sector build on these interventions.
“They are intended to simplify these products and make it easier for consumers to make informed decisions.
“The rules we will be implementing will not only improve the information consumers receive about BNPL offers, but will stop firms from charging backdated interest on sums repaid during the offer period.
“We expect the overall package of measures will save consumers around £40-60m a year and tackle the harm we identified in this market.”
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