FCA proposes BNPL loans regulations

The Financial Conduct Authority (FCA) has proposed new regulations for Buy Now, Pay Later (BNPL) providers, requiring them to ensure that borrowers can afford repayments and to offer support in the event of financial difficulties. The rules will come into effect when BNPL falls under the FCA’s oversight next year, granting borrowers protections similar to those in other lending types. 

The change will enable BNPL borrowers to complain to the Financial Ombudsman Service if something goes wrong. 

FCA’s research on unregulated BNPL found one-in-five (20%) 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.” 

Following years of campaigning from StepChange Debt Charity and other charities and civil society organisations, the FCA has confirmed Buy Now, Pay Later (BNPL) products will come under proper regulation by July 2026, bringing BNPL into line with the rest of the consumer credit sector.

Vikki Brownridge, CEO of StepChange Debt Charity, said “It’s incredibly reassuring to see the FCA’s consultation on its proposed approach to regulating Buy Now, Pay Later. This marks a significant step forward in what has long been a key campaign for StepChange Debt Charity to support our clients from problem debt. Whilst BNPL can be a useful budgeting tool, it can deepen debt problems, and it is important struggling consumers are afforded the same level of protection as for other forms of credit.

“Bringing BNPL firms in line with the wider credit market, when regulation begins next year, will provide an added layer of protections for consumers, a much needed change as StepChange polling found that BNPL users are twice as likely as all credit users to borrow to cover essential bills, and our research also found that BNPL is now as common as using an overdraft amongst UK adults.”

 Richard Pinch, Senior Director of Risk at Broadstone said“As the FCA moves to tighten regulations around the Buy Now Pay Later (BNPL) sector, providers will be under increasing pressure to enhance creditworthiness and affordability assessments and also demonstrate robust consumer protections. This marks a significant shift away from the relatively light-touch model BNPL firms have operated under, and places greater emphasis on affordability checks, credit reporting and fair treatment of borrowers. 

“In addition, the extension of Section 75 protections for consumers will mean firms will be jointly responsible with retailers for faulty or undelivered goods placing even more responsibility on risk and compliance teams to oversee merchant partners. All this in combination will pose a challenge to BNPL lenders, particularly those at the smaller end of the market, as those firms will need stronger data capabilities, credit risk assessment and monitoring tools to meet the FCA’s expectations. It is likely that these pressures could trigger consolidation within the market as smaller players are absorbed by those with greater capacity and finances to meet these new demands.”