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The UK watchdog has warned companies offering buy now, pay later products against using misleading adverts, saying they must comply with financial promotion rules.

“Unlicensed firms could commit a criminal offense if they fail to have their financial promotions approved by an FCA-licensed firm,” the Financial Conduct Authority said in a statement on Friday. “Authorized businesses selling unregulated or exempt BNPL products must comply with applicable rules, unless an exemption applies. This includes that their BNPL financial promotions must be clear, fair and not misleading.

The FCA said in a letter to businesses that it had seen adverts, including posts by social media influencers, that promoted short-term credit without warning of risks, such as unaffordable debt and consequences of missed payments.

“Businesses need to ensure that consumers, especially those in vulnerable circumstances, have the right information at the right time, so they can make effective, timely and properly informed decisions,” said Sheldon Mills. , FCA’s Executive Director of Consumers and Competition.

The popular form of short-term credit is coming under scrutiny amid fears of encouraging wasteful spending, which has been exacerbated by the cost of living crisis.

Buy now, pay later, which offers short-term interest-free credit, is unregulated due to an exemption for this type of loan. Charities and regulators have expressed concern that the product could encourage spending when users cannot afford it.

The FCA is expected to hold consultations on industry rules in 2023. In February, it asked four companies to buy now, pay later, reformulate terms using the broader Consumer Rights Act legislation. consumers.