Buy Now, Pay Later Gets a Makeover: New UK Regulations Explained

In a significant move, the UK government is bringing Buy-Now, Pay-Later (BNPL) agreements under regulatory oversight. Here's what you need to know:

The New Rules: Effective 2025, interest-free BNPL agreements will fall under the Financial Services and Markets Act 2000. This means BNPL providers must now be authorised by the Financial Conduct Authority (FCA). Previously unregulated, these services allowed consumers to split payments into up to 12 installments over a year.

Why the Change? The rapid growth of the BNPL sector, with 14 million users by early 2023, raised concerns about consumer harm. A review by the FCA in 2021 highlighted risks like misunderstanding of terms and lack of affordability checks. The new regulations aim to protect consumers by ensuring lenders conduct affordability checks and provide clear information.

Consumer Protections: Once regulated, users will benefit from protections like the Financial Ombudsman Service for disputes and Section 75 of the Consumer Credit Act for issues like faulty goods. These changes promise a safer and clearer BNPL experience for consumers.

For Businesses: The legislation impacts BNPL providers, who will face costs for FCA compliance. However, most e-commerce merchants won't need credit broking authorisation for offering third-party BNPL options, reducing their regulatory burden.

Looking Ahead: The FCA will monitor the impact of these changes, with a review planned every five years. The aim is a balanced approach that protects consumers while allowing BNPL services to thrive.

For more information, businesses and consumers can contact Philip Atkins at HM Treasury. The full impact assessment and legislative details are available on the legislation.gov.uk website.