The UK advertising watchdog has told a buy-now-pay-later credit firm to pull down adverts that don’t explain to consumers that its easy-access product is a form of debt.
The advertisement from pay-later credit provider DivideBuy appeared on a hoarding at the side of a football pitch. It asked users to visit its website to find out additional information — but its messaging on credit was too far down the page to be considered “sufficiently prominent” by the Advertising Standards Authority.
“The ASA considered that the claim ‘the smarter way to pay’ suggested that using the service was a preferable method of payment for expenditures, compared to paying the full amount at once. The claim presented the product as a sensible, risk-free method for general spending, including non-essential purchases,” the regulator said in a 20 October statement.
It said DivideBuy, which labelled its BNPL credit plan as “the smarter way to pay” was misleading. The advert, which promoted the ability to split payments into interest-free installments over several months, was “socially irresponsible” for encouraging consumers to use credit for non-essential purchases without considering their circumstances, the ASA added.
The watchdog’s ruling comes as the UK Treasury is set to lay out guidance for the Financial Conduct Authority to regulate the sector in a consultation next week, which will also affect other popular platforms including Klarna, Clearpay and Monzo, which also offer pay-later credit. The FCA is expected to recommend tougher checks to ensure consumers can afford what they’re buying, as well as clearer messaging around the credit nature of the products.
DivideBuy is one of a number of pay-later credit providers to have taken shoppers by storm in the last few years, with consumer spending using such products rising as much as 70% last year to £6.4bn, according to an October report by Bain & Co.
Pay-later credit, an unregulated service allowing consumers to split payments for products into short-term installments without racking up interest, has previously faced criticism from watchdogs including the ASA for not making clear that BNPL is a type of debt.
The ASA also ruled that DivideBuy broke advertising rules regarding financial products, which require adverts to describe offerings in a way that is easily understood by the audience being addressed.
The ASA said research had shown consumers often do not associate BNPL services with credit, meaning advertisements must be more explicit in stating that is the case. The watchdog issued additional guidance to pay-later credit providers in December, after an earlier advert by Klarna fell foul of its rules.
“We understood that DivideBuy operated as a credit agreement service and users were subject to potential penalties if they failed to make payments on time,” the ASA said. “We also understood that applications involved a ‘hard’ search of an applicant’s credit file, which could affect their credit score.”
DivideBuy, which counts US fund manager Davidson Kempner Capital Management among its largest investors, told the ASA that it was up to an individual’s discretion to agree to a hard credit search.
It added that it believed its products could be described as “smarter”, as consumers were paying the same amount for their purchase but over a longer period of time as compared to traditional credit providers.
The startup was contacted for additional comment.
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