Some consumers may face restrictions on using buy now, pay later (BNPL) services as stricter affordability checks are set to be implemented next year. The Financial Conduct Authority (FCA) has initiated a consultation aimed at safeguarding customers from accumulating unmanageable debts through BNPL schemes.
BNPL enables individuals to make purchases on credit and settle payments at a later time, typically over several months without accruing interest. However, concerns raised by debt charities highlight instances where individuals take out loans beyond their financial means.
Late fees can be imposed for missed BNPL payments, and certain companies may report such occurrences to credit bureaus. New proposals suggest that BNPL providers must assess borrowers’ repayment capabilities and provide assistance in case of financial distress. Borrowers will also have the option to lodge complaints with the Financial Ombudsman Service in case of any issues.
Research by the FCA indicates that approximately 20% of UK adults, equivalent to around 10.9 million people, utilized BNPL services at least once within the 12 months leading up to May 2024, up from 17% in 2022. Moreover, in May 2024, 2% of UK adults, totaling 1.1 million individuals, had outstanding unregulated BNPL debts of £500 or more, while 11% had outstanding debts of £50 or more.
The FCA consultation period extends until September 26, 2025, with the rules expected to take effect from July 15, 2026. Companies will have six months from the implementation date to seek full authorization.
Sarah Pritchard, FCA’s deputy chief executive, emphasized the importance of regulating BNPL products to ensure consumer protection. The focus is on leveraging existing regulations, such as the Consumer Duty, rather than introducing extensive new rules, to support industry growth and innovation.
Both Klarna and Clearpay have expressed their support for the forthcoming BNPL regulations, emphasizing the significance of consumer protection and adherence to compliance standards. The impending regulatory framework aims to instill consumer trust, promote sustainability, and enhance the credibility of BNPL services in the UK financial market.