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 to safeguard customers from incurring debt beyond their means.
BNPL allows individuals to purchase goods on credit with the option to pay later, typically over several interest-free months. However, concerns raised by debt charities highlight instances where individuals take on loans they struggle to repay, leading to potential financial hardship.
Late payment fees may be applied if BNPL installments are missed, and certain companies may report delinquent payments to credit bureaus. Under proposed changes, BNPL providers will be required to assess borrowers’ repayment capabilities and offer assistance in case of financial distress. Borrowers will also have recourse to the Financial Ombudsman Service for resolution of issues.
Statistics from the FCA reveal that around 20% of UK adults, approximately 10.9 million people, utilized BNPL services at least once within the year leading up to May 2024, an increase from 17% in 2022. Additionally, in May 2024, 2% of UK adults (1.1 million individuals) had outstanding unregulated BNPL debts exceeding £500, while 11% (5.3 million people) had balances of £50 or more.
The FCA consultation period for feedback extends until September 26, 2025, with the regulations slated to take effect from July 15, 2026. Companies will have a six-month window from the enforcement date to seek full authorization.
Sarah Pritchard, FCA’s deputy chief executive, emphasized the significance of bringing BNPL products under regulatory oversight to ensure consumer protection and financial well-being. The regulatory framework aims to enhance consumer financial literacy, provide support during financial challenges, and facilitate informed decision-making.
Klarna and Clearpay representatives expressed support for the impending regulations, emphasizing the importance of consumer protection, choice, and innovation within the UK credit market. The impending rules are anticipated to foster consumer trust, establish consistent operational standards, and promote sustainable growth of BNPL as a popular payment option.
The proposed regulations mark a collaborative effort between BNPL providers, regulators, and policymakers to create a balanced regulatory environment that promotes consumer financial well-being and industry sustainability.
