Some customers of buy now, pay later firms will be given refunds following a review by the financial watchdog.
Clearpay, Laybuy, and Openpay have agreed to voluntarily refund shoppers who cancelled their entire order but were still charged late fees.
The Financial Conduct Authority (FCA) called this practice inappropriate and said the loans should have been stopped immediately.
“The refunds will be paid where a customer has cancelled their entire order but have been charged a late payment fee for a loan repayment after the loan should have been cancelled,” ruled the FCA.
“This does not apply where the consumer has returned part of the order because instalments would still be due, although the instalments should be re-adjusted to take into account the refunds in respect of the returned goods.”
Are you affected? Get in touch: mirror.money.saving@mirror.co.uk
Klarna does not charge late payment fees, so no such refunds are due, the FCA said.
Am I owed a refund?
Refunds will be paid in cases where the customer was charged a late payment fee for a loan repayment after they cancelled their entire order.
Customers who returned part of their purchase will not qualify for money back because instalments would still be due, although they should be recalculated to remove the returned items.
If you think you are affected, get in touch with the buy-now-pay-later company that charged you.
If it does not agree to issue a refund, you can raise a formal complaint, which, after eight weeks, will allow you to escalate it to the Financial Ombudsman.
All four firms involved in the FCA review - Clearpay, Klarna, Laybuy and Openpay - have also agreed to change terms in their customer contracts to make them fairer and easier to understand.
The watchdog argued there was a potential risk of harm to consumers following the way some firms' terms had been written.
For example, it found the wording in some cases could’ve led to customers continuing to make payments when they didn’t need to.
The FCA was also concerned that the terms and conditions could be used to terminate or suspend a customer's account for any reason without notice.
It said it wasn’t clear how a customer could cancel a continuous payment authority (CPA) which is created when someone gives a firm their payment card details and consents to the firm regularly taking money from their account.
Have you had a bad experience with buy now, pay later firms? Let us know: mirror.money.saving@mirror.co.uk
The FCA was able to use the Consumer Rights Act to assess buy now, pay later contracts - despite these types of products being unregulated in the UK.
The government plans to change the law to bring some forms of unregulated buy now, pay later products into FCA regulation.
It comes after concerns were raised that people can rapidly build up debt through using BNPL as an option at online checkouts.
Sheldon Mills, executive director of consumers and competition at the FCA, 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 (buy now, pay later) 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."
All four firms have agreed to amend their terms to address the FCA's concerns - this includes changing their cancellation terms.
The Woolard Review previously found the use of buy now, pay later products nearly quadrupled in 2020, amounting to £2.7 billion.
Matthew Upton, director of policy at Citizens Advice, said: "We welcome this intervention by the FCA, and hope this sets the tone for its wider overhaul of the sector.
“Protecting consumers must underpin the long-awaited regulation of buy now, pay later."
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Buy now, pay later borrowers could be due a bumper payout, after the FCA found some of the rules around late payments fees were unfair.
“Lenders will also make their contracts fairer and clearer. It’s great news for anyone who was unfairly charged these fees.
“But it’s a fraction of what the FCA could achieve if it wasn’t having to reach across the divide of regulation, and work with a couple of blunt instruments while the enormous potential of the full toolbox remains locked.
