The UK Government has brought in new regulations for the buy now pay later (BNPL) industry to ensure it is in line with other credit products.
Customers choosing to make payments through BNPL will now need to pass an affordability check. This marks the latest move in the government’s efforts to remove the idea of the ‘wild west’ of unregulated borrowing. Additionally, users will also have fairer and faster access to refunds, and the right to complain to the Financial Ombudsman.
Outdated and confusing rules will be removed, with oversight shifting to the Financial Conduct Authority‘s (FCA) more flexible system — cutting unnecessary burdens on business while strengthening protections for consumers.
The changes will boost consumer confidence while giving firms the certainty they need to innovate, grow and invest — delivering on the government’s Plan for Change to grow the economy, unlock investment, create jobs and put more money into people’s pockets.
Emma Reynolds, economic secretary to the Treasury
BNPL is a useful tool when used responsibly to help people manage their finances and has grown rapidly with an extra two million people using the product since 2022. Over 10 million consumers now use the payment method. Commenting on the changes, Emma Reynolds, economic secretary to the Treasury, said: “Buy now pay later has transformed shopping for millions, but for too long has operated as a wild west – leaving consumers exposed.
“These new rules will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs through our Plan for Change.”
The announcement is backed by brand new reforms to the Consumer Credit Act — which will replace a 50-year-old regime with a modern, pro-growth framework that reflects how people borrow today.
Accelerating BNPL’s usage
Responding to the new changes, a spokesperson from Clearpay, noted how this will increase the payment method’s usage: “With the Government finalising BNPL legislation, we will support the FCA to deliver fit-for-purpose regulation that ensures consumer protection, provides much-needed innovation in consumer credit and supports the UK’s thriving fintech sector. Regulation will give clarity and consistency to the sector, establishing a consistent operating environment and compliance standards for all providers.
“Recent Clearpay research highlighted that nearly half of UK adults (48 per cent) are more likely to use BNPL once regulation is passed. Seventy-one per cent believe 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.”
One step forward but still many left to go
chief executive of Innovate Finance
Commenting on HM Treasury final approach and legislation for regulation of Buy-Now Pay-Later (BNPL), Janine Hirt, chief executive of Innovate Finance, the industry body for fintech, noted how small businesses may be the ones that feel these changes the most: “We worked with industry to provide HM Treasury with a blueprint for regulating BNPL. We welcome the publication today of the Treasury’s final approach and legislation to give the FCA powers to regulate BNPL.
“Proportionate regulation is vital to provide consistent consumer protection and customer experience, whilst ensuring continued innovation and access to inherently lower risk credit products that help consumers better manage their finances.
“The 12-month timetable for the FCA to develop and introduce proportionate regulation of BNPL is ambitious but achievable if it acts swiftly and constructively. We look forward to seeing outcomes-based proposals in line with the FCA’s pledge to the Prime Minister in January that new regulation will be based on the starting point that the Consumer Duty is sufficient, rather than additional prescriptive rules.
“This is good progress for consumers. The area where we believe there is more work to be done is in the way these rules may impact small business growth in the UK.
“We remain concerned that BNPL business finance provided to sole traders will be in scope of the regulatory regime. Specialist small business finance providers, or wholesale trade suppliers, currently offer this but are likely to withdraw such flexible repayment options, reducing sole traders’ access to reliable trade credit products.
“Furthermore, some firms are concerned by the decision to require domestic premises suppliers to obtain an FCA licence to offer BNPL. Under the Treasury’s rules, a plumber who goes to a family’s home to fix a burst pipe will need an FCA licence to provide BNPL as a payment option.
“Many of these traders are unlikely to go through this complex licensing process. It cannot be right that the family is unable to spread the cost through BNPL, and face the risk of interest if they are left with no choice but to use a credit card. We are pleased to see acknowledgement of this as an issue requiring further work and look forward to continuing to engage with the Treasury and FCA on this concern.
“We also welcome the consultation published today by the Treasury on wider reform of the 50-year-old Consumer Credit Act 1974 (CCA). Together with consumer bodies, we have been calling for a root and branch reform to ensure this keystone legislation provides far better outcomes for consumers and supports innovation.”
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