The Financial Conduct Authority has warned firms that offer Buy Now Pay Later products over misleading adverts.

Although the FCA does not yet regulate BNPL products, it has been proactively addressing concerns about potential harms to consumers.

The regulator has written to BNPL providers and the British Retail Consortium to explain that although some agreements are unregulated, the financial promotions of all BNPL products must comply with the financial promotion rules.

It did not explicitly name any companies in the announcement.

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Unauthorised firms might be committing a criminal offence if they don’t have an FCA-authorised firm approve their financial promotions. It says they must be clear, fair and not misleading.

The FCA is concerned consumers could be misled if BNPL financial promotions do not comply and says it has seen financial adverts on websites and social media, including posts by social media influencers, which may breach its rules. 

It says these emphasise 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; the impact on the customer’s credit file; and information about when charges become payable.

“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,” said Sheldon Mills, executive director of consumers and competition at the FCA.

“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.”

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The FCA recently held a roundtable with BNPL providers to discuss upcoming regulation and called on firms to do more to support borrowers in financial difficulty, including signposting to money guidance and debt advice.

Earlier this year the FCA worked with BNPL firms to secure changes to potentially unfair and unclear terms in BNPL contracts using powers under the Consumer Rights Act.

The FCA says it will use criminal and regulatory enforcement powers if it sees promotions that do not comply. So far this year, FCA action against firms that have breached its rules have led to 4,226 promotions being changed or withdrawn.