Can I give a pay in full price for a programme and a different price for a pay in instalments price?
Buy now pay later (BNPL) involves the provision of credit (as the customers are permitted to pay later than they otherwise would). If you are supplying credit to consumers (non corporate entities), there is a risk that these arrangements could fall within the scope of the UK’s consumer credit regime.
Contracts which provide the consumer with credit in excess of £25000 and which are wholly or predominantly for the purposes of a business carried on, or intended to be carried on are not caught within the scope of this regulation. There is a presumption that this is the case where there is a declaration to this effect in the contract, unless you know or have reasonable cause to believe that the agreement is not entered into on this basis.
Contracts which are £25000 or less and which are wholly for the purposes of a business carried on, or intended to be carried on, are similarly not caught within the scope of this regulation.
Falling within the UK’s consumer credit regime means that (1) you require a regulatory authorisation from the FCA, (2) you have to comply with the consumer credit rules imposed by the FCA and (3) the requirements of the Consumer Credit Act 1974 would apply meaning that mandatory disclosures must be made and the credit agreement must include prescribed wording.
If you provide consumer credit and don’t fall within an exemption to the requirement to obtain authorisation, this is a criminal offence.
The most likely exemption from requiring authorisation is if the credit to be repaid is restricted to 12 or fewer payments over a period of less than 12 months AND the credit is to be provided without interest and without any other charges.
Some people argue that expressing a pay by instalments price as the headline price and offering a discount for pay in full would get round the requirement for ‘no interest or other charges’. My view is that this would be considered an artificial construction of what in reality is an additional amount for the credit. The safest route when offering credit to consumers under transactions to which the regulations apply is to charge the same amount for instalments as pay in full (and to ensure no more than 12 instalments in any period of 12 months or less).
In addition, the government are currently consulting on tightening up the ‘buy now pay later’ terms of business as set out in this update:
This includes businesses being required to:
- carry out affordability checks
- ensure loans are affordable for consumers
- ensure Buy-Now Pay-Later advertisements are fair, clear, and not misleading
Traders offering BNPL would need to be approved by the Financial Conduct Authority, and consumers would also be able to take a complaint to the Financial Ombudsman Service.
The government will allow exemptions for specific agreements where there is limited risk of potential consumer detriment, and where regulation would otherwise adversely impact day-to-day business activities.
So watch this space…
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