Dive Brief:

• The Federal Trade Commission is warning those in the “BNPL ecosystem” — including buy now-pay later providers, retailers, marketers and collectors — that the FTC Act’s consumer protection rules apply regarding the payment plans.
• The main takeaway from the FTC for companies involved in BNPL installment plans: “Avoid deceptive or unfair tactics in what you say to consumers, how you convey material information, and how you treat them throughout the lifecycle of the transaction,” the agency advised in a Sept. 26 web post.
• The FTC notice follows a cautionary report from the Consumer Financial Protection Bureau last month regarding growing consumer use of BNPL financing. The bureau collected information from the biggest BNPL firms, including Affirm, Afterpay, Klarna, PayPal and Zip, and is now considering the possibility of new rules for the industry.

Dive Insight:

The FTC’s warning makes a point of speaking to merchants and other “market participants” beyond the installments providers themselves, attorneys with law firm Ballard Spahr noted in a web post. 

As installment offerings have become ubiquitous, the FTC wants “to make sure that companies are following basic consumer protection principles when they offer them to consumers,” an agency spokesperson said in an email. 

BNPL allows consumers to pay for a purchase in a series of equal payments, typically with no interest, over a period of weeks. The payment option has exploded in popularity amid the pandemic e-commerce boom, and has thus far operated in somewhat of a regulatory gray area.

With its growth, however, has come increased regulatory attention, and companies involved are now playing catch-up from a consumer protection standpoint, Patrick DellaValle, a director in the consulting firm Guidehouse’s financial services practice, told Payments Dive.

The FTC encouraged entities involved with BNPL to ensure that claims made are true for the typical consumer, not just a subset of customers.

“Misrepresentations regarding the cost of a product or the terms of the transaction, including associated fees, are deceptive and violate the FTC Act,” the agency said in the post. 

The FTC noted it has taken action against finance companies and retailers that have made advertising claims that only apply to a certain group of consumers. “Companies making claims about BNPL and other payment plans must ensure their claims are supported by reliable data,” the agency said.

The FTC also urged BNPL-related companies not to lose sight of making information clear for consumers as they strive for higher conversion in e-commerce environments. 

As merchants and payments companies pursue frictionless checkout processes in an effort to get more customers to complete a purchase, they run the risk of obscuring important information, such as the terms of a transaction, the agency warned.

“Companies must be careful to view the transaction through consumers’ eyes,” the post said. 

Lastly, the FTC noted companies involved in BNPL financing can’t point fingers at each other if issues arise with returns or order cancelations. “When retailers and BNPL companies offer payment plans to consumers, both may be held liable when people are deceived or treated unfairly,” the agency said.

If customers aren’t refunded in a timely manner, for example, “any company that made misleading claims about what would happen in those circumstances — as well as anyone involved in delaying refunds — could be liable under the FTC Act,” the agency said. That applies even if a customer ultimately gets money back, because the time spent pursuing a refund “counts as injury under the FTC Act,” the agency said in the post.