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The UK Government has initiated a consultation on proposed regulations for Buy Now, Pay Later (BNPL) services, aiming to bring these companies under the oversight of the Financial Conduct Authority (FCA) and align them with the Consumer Credit Act. The new rules will ensure that consumers receive clear information, avoid unaffordable borrowing, and are protected with robust rights when disputes arise.
Economic Secretary to the Treasury, Tulip Siddiq, emphasized the Government’s commitment to acting on BNPL regulation before the next election, stating: “We promised to take action before the election and now we are delivering. Our approach will give shoppers access to the key protections provided by other forms of credit while giving the sector the certainty it needs to innovate and grow.”
Under the proposed framework, BNPL firms will be required to carry out affordability checks to ensure that consumers can afford repayments before approving loans. Additionally, companies will need to provide “clear, simple, and accessible information” about loan agreements upfront, allowing consumers to make informed decisions and understand the risks, especially regarding late repayments.
To accommodate the unique online environment in which BNPL products are often used, the traditional disclosure rules under the Consumer Credit Act will be modified. This will allow the FCA to consult on bespoke regulations that better suit the digital nature of BNPL transactions. Initially, companies had raised concerns that requiring a formal credit agreement for every transaction would significantly slow down online purchases, potentially hindering customer experience.
Michael Saadat, International Head of Public Policy at Clearpay, welcomed the Government’s responsiveness, saying: “We welcome today’s update from City and FinTech Minister, Tulip Siddiq, on BNPL regulation. It is encouraging that HM Treasury has listened to industry feedback and evolved the previous framework to ensure a more proportionate approach to regulation.”
The new rules will also strengthen consumer rights, making it easier for customers to seek redress if they encounter issues with their purchases. This includes applying Section 75 of the Consumer Credit Act, allowing consumers to claim refunds from their lender, and providing access to the Financial Ombudsman Service for complaint resolution.
Rocio Concha, Director of Policy and Advocacy at Which?, highlighted the importance of these changes for consumer protection. “Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees. Clearer information about the risks involved, as well as affordability checks and options for redress, would be a win for consumers. We are keen to see legislation quickly passed.”
The consultation will close on 29 November, with final legislation expected to be introduced in Parliament by early 2025. Once enacted, the FCA will finalize the rules, which are set to take effect in 2026.
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