March Deadline For Buy Now Pay Later Offerings

Source: Financial Times

'Buy now pay later' providers and merchants have until 2 March 2021 to meet new guidance on how to comply with advertising standards. The guidance is summarised below. Please let me know if you need assistance.

Unregulated BNPL offerings allow consumers to defer full payment for a short period or allow payment by instalments, without interest.

To comply with the Advertising Standards Authority's CAP and BCAP Codes, all marketing communications for BNPL (including text on online checkout pages) must not be misleading. 

The ASA requirements apply even though the offering is not regulated by the Financial Conduct Authority, so it must be clear that BNPL services are still a form of credit and that using it could result in late payment fees, referral to debt collection agencies and have a negative impact on the customer's credit score. 

Marketing should not imply that is suitable for all customers or is risk-free credit.

Any claims that using BNPL will not impact a person's credit score or have no consequences for missing payments must be substantiated - particularly as debts may be sold to debt collection agencies. 

It is permissible, however, to explain that a "soft" credit check may not affect the customer's credit score, where that is in fact the case.

BNPL is not "free" if any fees are payable in any circumstances. 

Claims cannot be qualified in a way that contradicts the claim being made.

Ads for financial products must state the nature of the contract, any limitation, expense, penalty or charge and the terms of withdrawal. 

If the ad is brief, consumers should be directed to a page with all the relevant information (NB: this conflicts with FCA requirements that regulated consumer credit advertisements must be 'standalone compliant' - i.e. show all the required information, e.g. using a screenshot).

Where BNPL is offered during checkout: 

• it should be explicitly clear to customers (not disguised as means of entering card details as if paying by card immediately
• other available payment methods should be obvious.
• all relevant information must be set out on the page (not via a link).

This post is for information purposes only and is not legal advice and should not be relied upon as such.  Please let me know if you do need advice.  

#PSD2: Are Merchant Checkouts "Payment Instruments"?

The Treasury is consulting on its proposed regulations to implement the new Payment Services Directive (PSD2) in the UK.  The consultation ends on 16 March 2017 and the regulations must take effect on 13 January 2018. The FCA will consult on the guidance related to its supervisory role in Q2 2017. Time is tight and there are still plenty of unanswered questions, which I've been covering in a series of posts. In this one, I'm exploring whether online merchants' checkout process/pages could be "payment instruments", so that merchants who host their own process might be engaging in the regulated activity of "issuing payment instruments" (and possibly even offering a "payment initiation service"). There is now precious little time for retailers to consider the issue,  decide whether their activities are caught and, if so, whether to outsource the hosting of the checkout process to a duly authorised firm or its agent, restructure the checkout process or the entity/ies that operates it, or become authorised or the agent of an authorised firm.

Everyone is familiar with the e-commerce 'checkout' page or process, with its list of ways to pay for the items selected or in the 'shopping basket'. Sometimes these are hosted by a regulated payment service provider, an exempt 'technical service provider' or 'gateway', and sometimes by the merchant itself (in which case the merchant has to comply with certain security requirements in relation to card transaction data, for example). 

Whether technical service providers who are currently exempt will remain so under PSD2 is already an open issue, since to remain so they cannot also provide either a payment initiation service or an account information service, even though they still would not be handling the funds to be transferred.

The big question is whether merchants themselves fall into the regulated scope, especially as they ultimately receive funds, so might not qualify as technical service providers.

First, a few (of the many) relevant definitions:

“issuing of payment instruments” means a payment service by a payment service provider contracting to provide a payer with a payment instrument to initiate and process the payer’s payment transactions;

“payment instrument” means any— (a) personalised device; or (b) personalised set of procedures agreed between the payment service user and the payment service provider, used by the payment service user in order to initiate a payment order;

“co-badged”, in relation to a payment instrument, refers to an instrument on which is included two or more payment brands, or two or more payment applications of the same payment brand;

Note that the references to 'payment service' and 'payment service provider' are redundant or circular - essentially, they mean anyone who is, or should be, authorised to provide a regulated payment service. The reference to 'co-badging' is important as certain information could have to be provided under the Merchant Interchange Fee Regulations.

I think the primary questions are as follows, but the answers would vary considerably according to the payment method and other facts and circumstances:

• which payment transaction is involved in the relevant scenario, and who is the relevant 'payer'?

• is the checkout process/page a "personalised device"; or "personalised set of procedures agreed between" the customer and the merchant?

• if so, is the checkout process/page "used by the payment service user" (again, see here)?

• if so, is the payment service user using the checkout process/page "in order to initiate a payment order"... as explained previously...or 'payment transactions'?

• finally, how much processing would a merchant have to do to fall within the meaning of "initiate and process the payer's payment transactions": so, when does that processing begin and end; what steps/participants are involved; what is the nature of the processing (e.g. does it send transaction data to a payment gateway, acquirer or other type of payment service provider?); is the merchant acting as principal, agent or payee?

Hopefully, the Treasury and FCA will explain their interpretation soon!

How The UK Will Introduce #PSD2

The UK Treasury has published its plans for implementing the new Payment Services Directive (PSD2), which must be done by 13 January 2018.  We have until 16 March 2017 to comment on the draft regulations.  No doubt we will also soon hear what how the FCA will approach its supervisory role.

I've previously covered the key differences between PSD2 and the current directive, and there are many areas for differing interpretation...

I will share my thoughts on the current consultation in the coming week(s).

Update: a copy of my submission to the Treasury consultation is here.