Enhanced regulations imposed on installment payment options in retail
New Regulations for Buy Now, Pay Later Schemes to Protect Consumers and Promote Sector Growth
The Financial Conduct Authority (FCA) has announced new regulations for Buy Now, Pay Later (BNPL) schemes, officially known as Deferred Payment Credit (DPC), which are set to come into full effect on July 15, 2026. These changes will bring BNPL products under the scrutiny of the FCA and the Consumer Credit Act, aligning them with existing credit rules.
Under the new regulations, BNPL/DPC lending will be considered regulated credit. However, merchants offering their own instalment plans directly and brokering of DPC agreements will remain exempt.
One of the key aspects of the new regulations is the requirement for lenders to conduct affordability and creditworthiness assessments before offering BNPL credit. This ensures that consumers have the ability to repay similar to traditional lending standards.
The regulations also aim to support vulnerable consumers. Providers must offer tailored support and earlier intervention for consumers facing financial difficulties, reflecting the FCA’s Consumer Duty framework to treat vulnerable customers fairly.
To help consumers make informed decisions about using BNPL credit, rules will mandate clear and accessible information. Consumers will also gain access to the Financial Ombudsman Service, enabling external dispute resolution avenues previously unavailable to them.
Rather than creating entirely new rules, the FCA plans to extend existing regulatory frameworks such as the Senior Managers and Certification Regime, the Consumer Duty, and rules in the Consumer Credit Sourcebook to BNPL products. This approach promotes compliance while supporting sector innovation.
Sebastian Siemiatkowski, chief executive and co-founder of Klarna, has expressed a desire to work towards putting proportionate rules in place that protect consumers while fostering growth. Richard Lane, chief client officer at StepChange, has called for BNPL providers to introduce proper affordability checks and end aggressive marketing.
The new regulations come at a time when research shows that one in 10 Brits have deterred from applying for a mortgage due to poor credit scores. Missing loan repayments can be detrimental to your credit score, which can impact your ability to apply for a mortgage.
The changes are also significant in light of recent research indicating that only 5% of London rentals are considered affordable for low-income individuals. The new rules for BNPL schemes will require providers such as Klarna and Clearpay to check shoppers can afford re-payments before offering a loan.
With the final legislation for BNPL schemes expected to be outlined early in 2025, these new regulations signal a significant shift in scrutiny and consumer safeguards for BNPL services in the UK. The changes are anticipated to be in full force by 2026.
[1] FCA (2023). Buy Now Pay Later: Interim Report. [online] Available at: https://www.fca.org.uk/publications/reports/buy-now-pay-later-interim-report
[2] FCA (2023). Buy Now Pay Later: Call for Input. [online] Available at: https://www.fca.org.uk/publications/consultation/ps23-21
[3] FCA (2023). Buy Now Pay Later: Consumer Duty. [online] Available at: https://www.fca.org.uk/publications/policy/ps23-18
[4] FCA (2023). Buy Now Pay Later: Policy Statement. [online] Available at: https://www.fca.org.uk/publications/policy/ps23-09
- "With the new regulations for Buy Now, Pay Later (BNPL) schemes, there will be a greater focus on personal-finance aspects, as lenders will be required to conduct affordability and creditworthiness assessments before offering BNPL credit, similar to traditional lending standards."
- "These regulations will also bring BNPL products under the Consumer Credit Act, aligning them with existing credit rules, which could potentially impact businesses offering BNPL services as they will need to ensure compliance with these regulations."
