Regulations for buy now, pay later schemes to defend consumer purchases
UK to Regulate Buy Now, Pay Later Schemes Starting July 2026
The UK's Financial Conduct Authority (FCA) has announced that it will implement new regulations for Buy Now, Pay Later (BNPL) schemes starting on the 15th of July 2026. This timeline follows a consultation process that is currently underway, with a final policy statement anticipated in early 2026.
The FCA's move to regulate BNPL comes as the use of these schemes has been on the rise. According to the FCA's Financial Lives Survey in 2022, 27% of UK adults used BNPL at least once in the six months prior to January 2023, up from 17% in the preceding 12 months.
Ben Perks, managing director at Orchard Financial Advisers, has welcomed the move, stating that it is "long overdue." He warned that the ease of access and casual attitude towards using BNPL can be devastating, potentially hampering mortgage borrowing capabilities. Perks' concerns are shared by mortgage brokers, who have also expressed apprehension about BNPL schemes, stating that they can often alarm lenders on an application.
Frequent users of BNPL are more likely to be in financial difficulty. Consumers who have used BNPL more than 10 times are twice as likely to have a high-cost credit product and four times as likely to have missed a payment of a bill or credit commitment in three of the past six months.
From 15 July 2026, BNPL providers that offer regulated credit agreements must be FCA-authorized or have temporary permission through a temporary permissions regime (TPR). The TPR registration will open approximately two months before the July 2026 implementation to allow firms to apply and continue operating during authorization assessment.
The new regulations will require BNPL firms to conduct affordability checks, provide clear consumer information, handle complaints via the Financial Ombudsman Service, and comply with marketing restrictions. BNPL users will also be given stronger rights if issues arise with products they purchase, making it quicker and easier to get redress. This includes applying Section 75 of the Consumer Credit Act and access to the Financial Ombudsman Service to make complaints.
BNPL products are currently unregulated, and there are concerns about vulnerable shoppers being too easily tempted into debt. Similar to a credit card, there is no interest to pay if monthly payments for BNPL are made on time. However, if a payment for BNPL is missed, high interest and late fees may be charged.
Martin Lewis, founder of MoneySavingExpert, has warned that "people should still be very wary" of BNPL schemes. Major BNPL providers include Klarna and Clearpay, while PayPal and John Lewis are also part of the sector.
The FCA will have the power to apply rules on affordability, meaning that BNPL companies will have to check that shoppers can afford repayments. BNPL users will also benefit from similar rights to refunds as those paying by credit card under Section 75 rules.
It could take months for legislation to be introduced and another year after that for regulations to come in, with protections unlikely to go live until 2026. The Treasury has launched a consultation on legislation regarding BNPL, and regulations may not be introduced until at least 2026. BNPL can be used to purchase various items such as clothes, electrical items, food, and takeaways.
In conclusion, the expected regulatory framework for BNPL in the UK under FCA oversight will be in effect by mid-2026, with preparatory steps in the latter half of 2025 and early 2026. The FCA's move to regulate BNPL is a step towards protecting consumers and ensuring that they are not unfairly targeted by these schemes.
- In line with the upcoming regulations by the Financial Conduct Authority (FCA), businesses offering Buy Now, Pay Later (BNPL) schemes should start considering the importance of compliance with personal-finance rules, as they will be required to conduct affordability checks, provide clear consumer information, and adhere to marketing restrictions.
- The new regulations on BNPL schemes in the UK, set to be implemented by the FCA starting July 2026, are a significant development in the finance industry that addresses concerns about personal-finance management and potential misuse of BNPL services, particularly among vulnerable consumers.
