What Are The Latest Buy Now, Pay Later Regulation Updates In The UK?

Buy Now Pay Later borrowers will now come under formal regulation from 15 July this year after the Government confirmed that the Financial Conduct Authority will oversee the sector. The change means lenders must meet the FCA’s Consumer Duty and follow new rules on how they deal with customers.

Under the new regime, consumers must receive clear, upfront details about their agreement. This covers when payments are due, how much is owed and what happens if a payment is missed. Lenders will also have to carry out affordability checks before offering credit. The FCA says these checks must be proportionate and designed to make sure customers can repay what they borrow.

People who fall into financial difficulty must be offered support and directed to free debt advice where appropriate. If something goes wrong, customers will be able to complain to the Financial Ombudsman Service. Lenders must also be authorised by the FCA to offer Buy Now Pay Later products, and firms can register for a temporary permissions regime between 15 May 2026 and 1 July 2026. They will then have six months to apply for full authorisation.

Sarah Pritchard, deputy chief executive at the FCA, said: “We want the Buy Now Pay Later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products. But crucially, no one should be lent to if they’re unable to repay, because that could worsen their financial situation. Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”

Why Has The Government Stepped In Now?

The scale of the market explains the timing. According to the FCA, the value of the BNPL market went from £0.06bn in 2017 to more than £13bn in 2024. The regulator’s 2024 Financial Lives Survey found that 20% of UK consumers, which comes to about 10.9 million adults, used BNPL in the 12 months leading up to May 2024.

Until now, unregulated deferred payment credit agreements did not carry the same protections as other forms of borrowing. The FCA said there were no safeguards in place for people who use BNPL repeatedly and may struggle to afford repayments. The new rules target these unregulated agreements, defined in legislation as deferred payment credit.

The regulator has made it clear that BNPL can work well when used as intended, such as helping people manage cash flow. It also reminded consumers that BNPL is borrowing and that repayments must be affordable. Guidance on dealing with debt is available through MoneyHelper and the Debt Advice Locator tool.

Suppliers that offer their own credit will stay exempt from regulation. The Government decided in 2024 to keep the exemption for merchant own credit.

How Will Regulation Affect Lenders And Retailers?

This, for lenders, means stricter oversight and closer checks on customer affordability. Monica Eaton, Founder and CEO of Chargebacks911, said: “The FCA’s decision to bring Buy Now Pay Later into regulation is a logical next step for a product that has moved from niche to mainstream in just a few years. Affordability checks and clearer consumer protections should help reduce unsustainable borrowing, which is good news for both consumers and lenders.”

She added that the changes could alter how disputes are handled. “However, regulation may also change the dispute landscape. As BNPL becomes more formalised, we’re likely to see greater scrutiny around transaction policies, customer communication, and liability between lenders and merchants. Businesses offering BNPL at checkout should start preparing now, because what has traditionally been treated as a payments feature will increasingly be viewed through a regulatory and dispute-management lens.”

Tim Ranney, CEO of Congruit Inc., said lenders will need to rethink how they assess borrowers. “The FCA’s new rules reinforce what many of us have seen coming — credit decisions can’t rely on static scores alone. When affordability becomes a regulatory requirement, the industry must pay attention to how consumers are managing their financial obligations in real time.”

He added: “Creditworthiness is no longer just about the consumer’s history or presence of fraud indicators. It’s about timing, patterns, current capacity, and the consumer’s intent to honour their obligations.

“And the usage patterns on the consumers payment instrument(route/account, card, etc) is becoming much more important in predicting the outcome of a credit obligation. That’s where the market is heading — not just for compliance, but for better outcomes across the board.”