Buy now, pay later – and comply with the FTC Act immediately

Companies are increasingly marketing payment plans known as Buy Now, Pay Later (BNPL). Although BNPL plans vary in their exact terms, people typically pay for purchases over a period of several weeks, generally in equal installments. To transform consumers into customers, companies often make a variety of claims about the costs and conditions of BNPL plans. If your business offers BNPL payment options as a retailer or BNPL company – or if you play a role in the BNPL ecosystem as a marketer, collector, etc. – remember that basic consumer protection ground rules of the FTC Act apply.

In conducting a BNPL compliance check at your company, here are three key principles to keep in mind.

Claims must be true for the typical consumer.  Money is material. Misrepresentations regarding the cost of a product or the terms of the transaction, including associated fees, are deceptive and violate the FTC Act. And it’s not enough for some consumers to achieve the advertised result. The claim must be true for the typical consumer. The FTC has taken action against finance companies, retailers, and others making advertising claims that are true only for a subset of people. For example, a company’s claim that its payment plan is “zero cost” may be deceptive if the typical customer will, in fact, incur fees. Companies making claims about BNPL and other payment plans must ensure their claims are supported by reliable data.

Consider consumer understanding, not just conversion.  Today’s online shopping environment allows companies to collect (and monetize) immense amounts of data about consumers’ demographics and habits. Harvesting this data allows companies to test with increasing precision the effect of their claims and caveats on consumer “conversion,” click rate, and uptick – all terms used to describe getting consumers to become customers. However, as discussed in the FTC’s recent staff report, Bringing Dark Patterns to Light, and related workshop, companies that focus too much on conversion risk hiding or obscuring material information from consumers, whether by requiring users to navigate a maze of screens, using non-descript dropdowns or small icons, or burying information in dense Terms of Service documents. When designing and incorporating user interfaces that offer BNPL or other payment plans to consumers, and using aggregate or individualized consumer data to do it, companies must be careful to view the transaction through consumers’ eyes. Avoid dark patterns that negatively affect their understanding of the material terms of the transaction. 

If things go wrong, companies can’t disclaim liability by pointing to others in the ecosystem. Decades of FTC law enforcement establishes that the presence of multiple actors in a transaction is not a shield against liability. When retailers and BNPL companies offer payment plans to consumers, both may be held liable when people are deceived or treated unfairly. For example, what if a customer returns a product through a BNPL plan, cancels the order, or has the order cancelled by a retailer? If the customer doesn’t get a timely refund, 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. Even if the person ultimately gets their money back, the time they spent in the process counts as injury under the FTC Act, particularly if they had to contact a company (or several companies) multiple times or wait weeks for their refund to arrive.

What’s the main message for businesses that play a role in BNPL payment 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.