From Wednesday, July 15, buy now pay later (BNPL) customers will have to undergo new affordability checks under stronger protections, as the sector comes under the regulation of the Financial Conduct Authority (FCA). Lenders will need to be authorised by the regulator to provide BNPL products and will also be subject to the Consumer Duty, which requires financial firms to put customers at the heart of what they do.
FCA Spokesperson on Consumer Protection
A spokesperson for the FCA said: “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 get clearer information before they sign up “and better support if something goes wrong”.
Market Growth and Debt Concerns
BNPL options often appear at online checkouts as a slick and easy way to pay, helping people spread the cost. However, concerns have been raised about people running up significant debts by making multiple BNPL purchases. The BNPL market has grown significantly, reaching over £13 billion in 2024, the FCA said previously. According to its 2024 Financial Lives Survey, 20% of UK consumers, equating to 10.9 million adults, used BNPL in the 12 months to May 2024.
Expert Views on Affordability Checks
Sarah Coles, head of personal finance at AJ Bell, said: “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. It means a real risk of stacking these debts until they’re unwieldy. The rules requiring stricter affordability checks are highly sensible.” Ms Coles noted that the added friction in the process “should help people stop and think about whether they really need the item they’re buying, and consider the total cost rather than just the price of the instalments – which can be incredibly useful”.
Consumer Advocacy and Complaints
Rocio Concha, director of policy and advocacy at Which?, said regulation “means users of these services will benefit from stronger safeguards”. She added: “Before choosing BNPL, shoppers should consider whether they can comfortably afford the repayments and understand the consequences of missing them. Regulation should make those decisions easier by ensuring people have clearer information and stronger consumer rights.”
Under the changes, people will be able to take their complaints about BNPL to the Financial Ombudsman Service (FOS). Complaints must be in relation to agreements taken out on or after July 15 and be about regulated firms. Potential BNPL gripes taken to the ombudsman may include whether the lending was affordable and whether the customer understood the agreement.
Ombudsman Ready for Complaints
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. We have worked closely with the FCA to make sure we are ready to handle these complaints fairly and efficiently and have engaged with firms to ensure they understand our approach.”
In its most recent plans and budget, the FOS said it anticipates around 2,000 complaints from BNPL users in this financial year.
New Requirements for Lenders
The FCA’s regulation will require lenders to provide clear upfront information about the agreement, including when payments will be due, amounts, and what happens if they miss a payment. Firms will need to assess consumers’ creditworthiness, including affordability, and support consumers in financial difficulty, including pointing them to free debt advice where appropriate. BNPL agreements may be reported to credit reference agencies, potentially affecting future lending decisions.
Dimitar Lazarov, head of Credit Karma UK, said that while this could help people who typically pay their BNPL loans on time, those who may fall behind should be aware that “it could have an impact on their ability to apply for other products”. John Webb, head of consumer affairs, Experian UK and Ireland, said people should remember that when they open a new BNPL account, this may be taken into account on credit reports by lenders when considering new borrowing applications “such as a loan, credit card or mortgage”.
Industry Response
A spokesperson at BNPL provider Clearpay welcomed the regulation, saying it “will help establish a consistent operating environment and clear standards for all providers”. The spokesperson said: “Millions of consumers rely on BNPL for short-term and interest-free credit to make everyday purchases. We will continue to provide our existing safeguards that customers have long valued, including pausing accounts if a single payment is missed and capped late fees.”
A spokesperson for Klarna 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.” The Klarna spokesperson added: “Robust regulation that gives consumers added confidence and strengthens their access to protections is a good thing.”
Debt Charity Advice
Vikki Brownridge, chief executive at StepChange Debt Charity, said: “There’s no doubt that BNPL can be a useful form of credit – especially as it’s usually short-term and interest-free – to spread the cost of a bulky expense. However, as with any form of credit, regulation is vital to protect customers if something goes wrong, and ensure people aren’t being offered credit where it’s not affordable – something which will trigger debt problems, as we see all too often. Consumers can go on using BNPL in the same way as before, but it’s important to be aware of the new protections. 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 to help get back on track.”
