The FCA consultation process is ongoing, with lenders and consumer groups having until 26th September to respond to the proposals. In their current form, the rules will give BNPL firms six months from 15 July 2026 to become an FCA-authorised operator. They will then need to carry out affordability checks on borrowers, offer faster refunds and meet set industry standards. This is all in an effort to curb the number of borrowers taking on debt they cannot afford to pay back and bring very popular but unregulated BNPL firms in line with lenders offering mortgages and loans.
Vikki Brownridge, the chief executive of the debt charity StepChange, said: "Whilst BNPL can be a useful budgeting tool, it can deepen debt problems, and it is important struggling consumers are afforded the same level of protection as for other forms of credit."
What is Buy Now, Pay Later?
Buy Now, Pay Later is a booming credit industry that has jumped from £60m of lending in 2017 to £13bn in 2024, according to the FCA. BNPL services allow consumers to spread the cost of what they are buying, instead of paying for a purchase all in one go.
The short-term instalments do not usually incur interest charges, but borrowers can be hit by significant late fees that are made more likely by the lack of a requirement to run affordability checks on applicants. Financial education charity the Centre for Financial Capability commissioned research that found almost a quarter of BNPL debt incurred late repayment fees in the six months to December 2023.
Critics of the industry argue that as longs as Buy Now, Pay Later is not regulated by the FCA, many consumers will find themselves largely unprotected when issues arise. Some may not even have realised that they were taking on debt in the first place.
BNPL is an increasingly popular system, with an estimated 11 million people in the UK having used BNPL in the last year, climbing by two million in the past three years, according to research carried out by the FCA. It is now commonplace to see a big BNPL firms such as Clearpay or Klarna alongside standard payment options on online checkout pages.
The previous government announced plans to regulate BNPL as far back as 2021 and began a consultation period on new legislation in 2023, but the industry remains unregulated today. The changes announced by the FCA today will still take a year to come into force.
Will shopping with Buy Now, Pay Later change?
Buy Now, Pay Later will change to some degree once FCA oversight is introduced and affordability checks become essential. However, it is not clear exactly how this will work in practice.
Alison Walters, interim director of consumer finance at the FCA, said: "We are not prescribing how firms do it, because digital journeys will vary. But the firms must carry out an affordability check to ensure that consumers can afford to repay that borrowing.
"Credit is not right for everybody. There will potentially be consumers who will not be able to access this product and firms can signpost them to other support like debt advice."
This suggests there will not be universal standards set on how affordability checks are carried out, but rather a flexible system that lenders can adapt to their current processes.
This ties into past praise of the BNPL sector from prominent members of the government and suggests that Buy Now, Pay Later will not be disappearing anytime soon.
Emma Reynolds, economic secretary to the Treasury, said said the BNPL industry "for too long has operated as a wild west – leaving consumers exposed", but praised the concept as having "transformed shopping for millions".
Overall, BNPL users should expect to see more stringent affordability tests, clearer routes to getting debt help and more standardised practices across the sector, once the rules are put into place next year.
Once Buy Now, Pay Later firms are regulated by the FCA, any complaints could eventually end up with the Financial Ombudsman, which does not currently have power over BNPL issues. A smoother complaints procedure, greater accountability and increased transparency will be welcomed by consumer groups who have long argued that current legislation is not fit for purpose.
Is Buy Now, Pay Later the best way to spread the cost of a purchase?
By making a purchase through a third-party, you forgo the consumer rights you are afforded under section 75 of the Consumer Credit Act, which applies to credit card purchases over £100. This means that it could be harder to get a refund if something goes wrong. What’s more, for small purchases through BNPL, the penalties you may incur for missing payments can be very high relative to the value of the goods you are purchasing.
Depending on the situation and the type of spending you are looking to do, you could consider a credit card with 0% interest offers on purchases and/or balance transfers instead. The best deals allow you to spread payments for over a year without incurring interest.
You can read more about BNPL in our article ‘What is Buy Now, Pay Later?’.
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