Buy now, pay later: Warning over influencers' adverts on social media

Some buy now, pay later products are promoted on social media posts (picture posed by model)

Some influencers fail to highlight the potential risks of buy now, pay later (BNPL) products when they post adverts online, a regulator has warned.

Financial promotions must explain the issues of unaffordable debt and missed payments, even if the product itself is unregulated.

But the Financial Conduct Authority (FCA) said that consumers could be misled by some BNPL adverts.

It said posts must be clear and fair, and include prominent risk warnings.

"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 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."

Rise of buy now, pay later

Buy now, pay later has become a commonplace method of payment and credit for UK shoppers in recent years.

It allows people to pay for purchases in instalments over a short-term fixed-payment schedule and interest-free.

Some 17 million people in the UK, including 30% of those aged in their 20s, have used it. While popular, it has led to concerns over levels and visibility of debt - particularly as budgets are squeezed by the rising cost of living.

• How does buy now pay later work?

• Warning as credit used to cover buy now pay later

Buy now, pay later firms have been under pressure from watchdogs over contract terms and conditions, but as yet these services remain unregulated.

In June, the government unveiled plans to change that situation, including a requirement for providers to be approved by the FCA.

The proposals also included guidelines on advertising and checks to ensure customers can afford to pay.

But, even before such plans become law, there are already rules that mean unauthorised firms could be committing a criminal offence if they do not have an FCA-authorised firm approve their financial promotions. Such promotions include posters in shop windows, paid for Google ads, and posts made by influencers on social media.

The watchdog said it had seen financial adverts on websites and social media which could have breached rules by failing to include prominent warnings on:

• Risks of tacking on debt that people cannot afford to repay

• The consequences of missing repayments

• A potential impact on credit files of missed payments

• Any information about when fees need to be paid

So far this year, the FCA said its action against firms that had breached its rules had led to 4,226 promotions being changed or withdrawn.

However, debt charities say that the regulation itself needs to be clearer and more consistent.

"A patchwork of rules and protections, depending on which provider you use, is a poor placeholder for clear and consistent regulation," said Matthew Upton, director of policy at Citizens Advice.

"The Treasury said it will regulate, but everyday that passes without action leaves consumers unprotected and unaware of the consequences of this new form of credit."