Buy now, pay later finally set for consumer protections... but not until summer 2026
Under the proposed regulation, lenders will be required to check that users can afford to repay BNPL loans, and will have to offer support to customers that get into financial difficulty.
BNPL has ballooned in popularity in recent years, with shoppers able to split payments - typically in three or six chunks, rather than having to fork out the full sum up front or stick on a credit card.
The new rules will mean that BNPL users can make complaints to the Financial Ombudsman if something goes wrong.
The new regulation is expected to come into force in 2026 when BNPL falls under the FCA's remit. The FCA's consultation, open to BNPL lenders, consumer groups and the wider industry, will run until 26 September.
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.'
One in five adults are believed to have used BNPL at least once in the year to May 2024, an increase of 17 per cent on the year prior.
One In six choose BNPL due to the minimal credit checks that it has, according to research from TransUnion.
However, 48 per cent said they would be more likely to use BNPL after regulation has been passed, according to data from BNPL lender Clearpay.
The FCA says there will be temporary permissions put in place, meaning that firms will need to follow FCA rules, but will be able to continue to trade before they are fully authorised.
Madhu Kejriwal, chief executive of TransUnion UK and Europe, said: 'We welcome the government's continued focus on bringing BNPL into the regulatory framework.
'Clear, proportionate regulation is essential to protect consumers while enabling innovation and access to flexible payment options.
'I see it as an essential step in the evolution and maturation of the market.'
A spokesman for Clearpay said: 'We will support the FCA as it consults on and finalises its specific rules for the sector.
'Coming into force on 15 July 2026, regulation will establish a consistent operating environment and clear compliance standards for all providers.
'Clearpay has always called for fit-for-purpose regulation that ensures consumer protection, provides much-needed innovation in consumer credit and supports the UK's thriving fintech sector.'
Some have concerns about the product, however, largely due to the current lack of regulation.
Neil Kadagathur, chief executive of Creditspring, said: 'The issue is that it has been designed and marketed as a risk-free solution for everyday spending, but in reality, it can push people into debt without them fully understanding the consequences.
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