Buy-Now, Pay-Later - What firms need to know

Last year, the Government ran a six-week consultation between 17 October and 29 November 2024 on proposals for bringing currently unregulated Buy-Now, Pay-Later (BNPL) products into regulation. This consultation also included draft legislation. It received 61 responses from a range of stakeholders including BNPL firms, the wider consumer credit industry, trade associations, consumer groups, and academics.

Buy-Now, Pay-Later

As a reminder, the term ‘Buy-Now, Pay-Later’ refers to a type of interest-free instalment credit which allows borrowers to split the cost of purchases into regular repayments within a 12-month period and in 12 or fewer instalments. As these agreements are unregulated, firms offering them do not need to be authorised and regulated by the Financial Conduct Authority (FCA), nor do they have to comply with the requirements of the Consumer Credit Act 1974 (CCA).

This can cause confusion for customers who:

1) assume they are regulated, and

2) believe they have the same access to recourse that regulated products provide.

The current consultation

The previous Government published two consultations (in October 2021 and February 2023) on its approach to regulating BNPL. The current consultation document outlined the Government’s proposals to bring these products into regulation.

These plans aim to ensure people using BNPL products:

• receive clear information,
• avoid unaffordable borrowing, and
• have strong rights if or when issues arise.

The Government’s approach will maintain access to a popular product while introducing necessary safeguards.

The consultation explained how the Government’s proposed regulatory regime will deliver key protections for consumers, including: 

• FCA oversight of firms offering BNPL products;
• allowing the FCA to apply rules on affordability and creditworthiness checks; and
• the ability for borrowers to access the Financial Ombudsman Service (FOS) and benefit from the protections of section 75 of the CCA should something go wrong with their purchases.

The Government’s proposed approach to regulating BNPL products firstly involves not using or applying current CCA provisions on information requirements that would otherwise apply to newly regulated BNPL agreements. Once this step is completed, the FCA will then be able to design and implement an information disclosure regime for BNPL in its rules. The purpose of this approach is to improve consumer understanding and ensure the regime is appropriately tailored to BNPL products. 

The consultation explained that a Temporary Permissions Regime (TPR) for BNPL lending will enable firms that are not yet authorised to carry on consumer credit lending or credit broking activities to continue their BNPL activities while their application for full authorisation is being reviewed. Without such a TPR, these firms would need to cease operations once BNPL becomes a regulated activity, which could lead to significant disruption or a delay in implementing the regulation.

This response summarises feedback to the consultation and sets out the Government’s final positions on aspects of its proposed BNPL regulatory regime.

The Government is committed to introducing BNPL regulation as soon as possible. It intends to lay the Statutory Instrument (SI) before Parliament. Once the SI is made, the FCA will have 12 months to draft, consult on, and finalise its rules for BNPL lending. BNPL products will then enter regulation around mid-2026 with the TPR in place.

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