New rules governing buy now pay later (BNPL) deals will come into force later this year, the FCA has confirmed.
From July 15, BNPL will be subject to the FCA’s Consumer Duty, in a move initially proposed last year, and made possible following a UK Government decision to bring BNPL – also known as deferred payment credit (DPC) – under FCA regulation.
The FCA says resulting measures will include BNPL borrowers receiving clear, upfront information about their agreement, with details such as when payments will be due, the amounts involved, and what will happen if they miss a payment.
Lenders will have to carry out proportionate checks to make sure customers can afford to repay what they borrow before offering BNPL, and will need to offer support to customers in financial difficulty, and, where appropriate, direct them to free debt advice.
Customers will also gain the ability to make complaints about BNPL deals to the Financial Ombudsman Service.
Before they can offer BNPL agreements, lenders will need to be authorised by the FCA.
Sarah Pritchard, deputy chief executive of the FCA, said: “We want the buy now pay later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products.
“But crucially, no one should be lent to if they’re unable to repay, because that could worsen their financial situation.
“Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”
New BNPL rules ‘may reduce number of agreements’
In response to the announcement, law firm Auxillias has published a bulletin on preparing for the new regulations which emphasises their scope.
The bulletin states: “For clients operating in DPC or partnering with DPC providers this is not a documentation tidy‑up; it reaches into product design, customer journeys, disclosures, affordability assessments, arrears strategies and board‑level governance.”
Auxillias points out that the new regulations may lead to fewer BNPL agreements being implemented.
It states: “The FCA is candid that there may be a reduction in transaction volumes as unsustainable credit is curtailed (particularly due to mandatory creditworthiness assessments).
“In the FCA’s judgment, this is a feature rather than a bug: it reduces indebtedness, arrears and late fees, which in turn supports long‑term confidence and sustainable growth.”
According to Auxillias, actions firms should now take include mapping existing BNPL services against the new rules, looking for gaps in “disclosures, creditworthiness processes, arrears handling and support for customers in difficulty”.
Auxillias also advises firms to make sure that important product information is designed and tested for usability, that appropriate creditworthiness assessment engines are built or refined, that frameworks for robust oversight are put in place, and that authorisation plans are in place to avoid a ‘cliff edge’ when the new rules come in.
Auxillias states: “For DPC and wider consumer credit providers, those who act early to embed coherently into their governance and product architecture will be best positioned to avoid future supervisory friction and to compete on the basis of transparent, sustainable credit.”