From today, July 15, a major regulatory change for buy now pay later (BNPL) customers comes into effect, affecting an estimated 11 million shoppers across the UK. The sector is now under the regulation of the Financial Conduct Authority (FCA), requiring all BNPL lenders to be authorised by the regulator. This move brings BNPL products under the Consumer Duty, which mandates financial firms to prioritise customer interests.
Stronger Protections for Consumers
A spokesperson for the FCA stated: “Buy now pay later can be a form of credit, but people deserve to be protected when using it. Lenders should check their customers can afford to pay it back.” The spokesperson added that millions of customers will receive clearer information before signing up and better support if issues arise.
BNPL options, commonly found at online checkouts, allow shoppers to spread payments interest-free. While helpful for budgeting, some users may overspend or accumulate multiple debts. According to the FCA's 2024 Financial Lives Survey, 20% of UK consumers—10.9 million adults—used BNPL in the 12 months to May 2024, with the market reaching over £13 billion in 2024.
Affordability Checks and Credit Reporting
Under the new rules, lenders must assess consumers’ creditworthiness, including affordability, and provide clear upfront information about payment schedules, amounts, and consequences of missed payments. Firms are also required to support customers in financial difficulty, including directing them to free debt advice. BNPL agreements may be reported to credit reference agencies, potentially impacting future lending decisions.
Sarah Coles, head of personal finance at AJ Bell, commented: “Most payments using BNPL are relatively small. The Woolard Review, done by the FCA in 2021, showed that people often didn’t think of it as borrowing either. A combination of both things means borrowers don’t consider affordability as carefully as they would for other kinds of debt. The rules requiring stricter affordability checks are highly sensible.” She noted that added friction in the process “should help people stop and think about whether they really need the item they’re buying.”
Complaints to Financial Ombudsman Service
Consumers can now take complaints about BNPL to the Financial Ombudsman Service (FOS). Complaints must relate to agreements taken out on or after July 15 and involve regulated firms. Potential grievances include whether lending was affordable and whether the customer understood the agreement. The FOS anticipates around 2,000 complaints from BNPL users in this financial year.
James Dipple-Johnstone, interim chief ombudsman for the FOS, said: “This is an important step for consumers who use buy now pay later. If something goes wrong and they cannot resolve the issue with their provider, they now have access to our free and impartial service. As new financial products become part of everyday spending, it is vital that consumer protection keeps pace.”
Industry Reactions
Rocio Concha, director of policy and advocacy at Which?, said regulation “means users of these services will benefit from stronger safeguards.” She advised shoppers to consider whether they can comfortably afford repayments and understand the consequences of missing them.
BNPL providers have welcomed the change. A spokesperson for Clearpay stated that the regulation “will help establish a consistent operating environment and clear standards for all providers,” adding that they will continue existing safeguards such as pausing accounts for missed payments and capped late fees. Klarna’s spokesperson said: “Klarna’s called for regulation since 2020, so we welcome this moment. The FCA’s rules largely formalise what we already do – we run affordability checks, show costs up front and report to credit reference agencies.”
Advice for Consumers
Charity StepChange suggests pausing before using BNPL to consider if the purchase would be made without credit. Keeping track of payments and terms is advised, especially for those with multiple debts. Vikki Brownridge, chief executive at StepChange Debt Charity, said: “There’s no doubt that BNPL can be a useful form of credit… However, as with any form of credit, regulation is vital to protect customers if something goes wrong. If you are finding yourself struggling to keep up with payments, rather than taking on more credit or BNPL agreements, we would always advise seeking free and impartial debt advice.”
