FCA to bring in protections for buy now pay later borrowers 

The FCA has put forward proposals to introduce key protections for buy now pay later (BNPL) borrowers that are in place for other types of lending.

The proposals include requiring lenders to check that people can afford to repay BNPL loans and to offer support if they get into financial difficulty. 

BNPL borrowers will also be able to complain to the Financial Ombudsman Service if something goes wrong. The rules would take effect when BNPL comes under the FCA’s remit next year.

There will be a temporary permissions regime in place. This means firms will need to follow FCA rules and will be able to continue to trade before they’re fully authorised.  

The FCA’s research on unregulated BNPL found 20% of UK adults (10.9 million) had used it at least once in the 12 months to May 2024, up from 17% (8.8 million) in 2022. 

Sarah Pritchard, deputy chief executive at the FCA, said: “We have long called for BNPL products to be brought into our remit, so people can benefit from BNPL while being protected. Our regulation will help consumers navigate their financial lives, with checks on whether they can afford to repay, support when things go wrong and access to the right information to make informed decisions.  

“We’re mainly relying on existing requirements, including the Consumer Duty, rather than proposing to make lots of new rules, supporting growth and allowing firms to innovate.” 

Hyder Jumabhoy, partner at international law firm White & Case, commented: “The FCA’s tightening of regulations around the BNPL sector in the UK will subject lenders to more robust consumer protection and tougher credit check requirements. Alongside the rise in interest rates pushing up the cost of capital to providers, compliance with these changes is likely to increase operating costs and squeeze margins further for many BNPL providers.

"This will create pressure on BNPL firms to scale-up their compliance functions, but it could also drive a wave of consolidation in the market, especially among smaller providers. Challenger banks could be particularly active in this space, seeking to enhance their consumer lending propositions by acquiring BNPL platforms with established merchant networks and user bases.”

A spokesperson at Clearpay said: “With the FCA publishing its proposed rules to regulate Buy Now, Pay Later (BNPL), the 12-month countdown is now on. We will support the FCA as it consults on and finalises its specific rules for the sector. Coming into force on 15 July 2026, regulation will establish a consistent operating environment and clear compliance standards for all providers. 

“Clearpay has always called for fit-for-purpose regulation that ensures consumer protection, provides much-needed innovation in consumer credit and supports the UK’s thriving FinTech sector.

“Clearpay research highlighted that nearly half of UK adults (48%) are more likely to use BNPL once regulation is passed, and with 71% believing that it is important for BNPL to be subject to UK financial legislation, today’s announcement will help foster trust among consumers. It will also create a more sustainable foundation for the future of BNPL as it continues to grow as an everyday payment option for consumers.”