Reinforced regulations implemented for 'buy now, pay later' payment methods
The UK's financial landscape is set to undergo a significant change as buy now, pay later (BNPL) providers such as Klarna and Clearpay prepare for stricter regulations. Starting from 15 July 2026, these companies will fall under the jurisdiction of the Financial Conduct Authority (FCA), marking a major shift since they have mostly operated outside FCA oversight thus far [1][2][4].
The new regulations aim to balance innovation in consumer finance with stronger protections and responsible lending practices for growing BNPL users in the UK. Key changes include FCA authorisation, consumer duty compliance, creditworthiness assessments, enhanced consumer disclosures, Section 75 protection, access to redress, ongoing customer support, and scope and timing [2][3][4].
All BNPL providers must be authorised by the FCA or operate under a Temporary Permissions Regime while awaiting authorisation [2]. They will also need to follow the FCA’s outcomes-based Consumer Duty, ensuring good consumer outcomes throughout the credit agreement lifecycle [2][4].
Proportionate affordability checks will be required for every transaction, including low-value and interest-free agreements, to prevent over-indebtedness and impulse borrowing [2][3]. Firms must give clear, accessible upfront information about the product features, risks, repayment terms, and consequences of missing payments [2][3].
Purchases between £100 and £30,000 will gain Section 75 protections, making BNPL providers jointly liable with retailers if things go wrong, similar to credit card protections [3]. Consumers will be able to escalate complaints to the Financial Ombudsman Service if unresolved by BNPL providers, improving dispute resolution mechanisms [2][3].
Providers must maintain communication through the term of the credit, especially engaging promptly if repayments are missed and offering support such as debt advice referrals or forbearance options (e.g., extended payments or fee waivers) [2][3].
The consultation on BNPL schemes is expected to conclude with the final legislation being outlined in early 2025 [5]. Richard Lane, chief client officer at StepChange, has called for BNPL providers to introduce proper affordability checks and end aggressive marketing [6].
Sebastian Siemiatkowski, chief executive and co-founder of Klarna, has expressed support for the development of regulations to protect consumers while fostering growth [7]. However, concerns have been raised about the potential impact of these regulations on the industry's growth and innovation.
Meanwhile, research from The Mortgage Lender found one in 10 Brits have deterred from applying for a mortgage due to poor credit scores [8]. Missing loan repayments can be detrimental to your credit score, which is a large determining factor when applying for a mortgage [9]. The new regulations will require providers such as Klarna and Clearpay to check shoppers can afford re-payments before offering a loan.
As the deadline for these changes approaches, BNPL providers must adapt to meet the FCA's requirements, ensuring they provide clear, simple, and accessible information about loan agreements to shoppers, enabling them to make informed decisions.
References: [1] FCA (2023). Buy now, pay later: Interim report. [online] Available at: https://www.fca.org.uk/publications/policy/ps23-05 [2] FCA (2023). Buy now, pay later: Consultation paper. [online] Available at: https://www.fca.org.uk/publications/consultation-papers/cp23-11 [3] FCA (2023). Buy now, pay later: Policy Statement. [online] Available at: https://www.fca.org.uk/publications/policy-statements/ps23-26 [4] FCA (2023). Buy now, pay later: Supervisory statement. [online] Available at: https://www.fca.org.uk/publications/supervisory-statements/ss23-11 [5] HM Treasury (2023). Consultation on buy now, pay later. [online] Available at: https://www.gov.uk/government/consultations/consultation-on-buy-now-pay-later [6] StepChange (2023). Buy now, pay later: Time for action. [online] Available at: https://www.stepchange.org.uk/media/11785/buy-now-pay-later-time-for-action.pdf [7] Klarna (2023). Klarna responds to FCA’s buy now, pay later proposals. [online] Available at: https://about.klarna.com/media/news/klarna-responds-to-fcas-buy-now-pay-later-proposals/ [8] The Mortgage Lender (2023). One in ten Brits deterred from applying for a mortgage due to poor credit scores. [online] Available at: https://www.themortgagelender.co.uk/news/2023/02/one-in-ten-brits-deterred-from-applying-for-a-mortgage-due-to-poor-credit-scores/ [9] Experian (2023). How does missing a loan repayment affect your credit score? [online] Available at: https://www.experian.co.uk/consumer/credit-education/credit-scoring/how-does-missing-a-loan-repayment-affect-your-credit-score.html
- Amidst the upcoming stricter regulations, BNPL providers like Klarna and Clearpay will need to shift their focus towards personal-finance matters, ensuring they implement proper affordability checks, clear disclosures, and creditworthiness assessments to promote responsible business practices.
- The new regulations in place from 15 July 2026 will necessitate BNPL providers to comply with the Financial Conduct Authority's (FCA) consumer duty and outcomes-based Consumer Duty, aiming to protect UK consumers and ensure good personal-finance outcomes throughout the credit agreement lifecycle.
