Stricter measures imposed on installment payment options, specifically 'buy now, pay later' plans
The UK government has announced new regulations for Buy Now, Pay Later (BNPL) services, effective from July 15, 2026. These regulations will bring BNPL providers, now termed Deferred Payment Credit (DPC) lenders, under the full scope of the Financial Conduct Authority (FCA) regulation.
Key Changes
The new regulations will require DPC lenders to carry out mandatory creditworthiness assessments and affordability checks before lending. They will also be required to provide clear pre-contract information to consumers and comply with FCA complaints handling procedures. A Temporary Permissions Regime (TPR) will be introduced to allow existing BNPL firms to continue operations while applying for full FCA authorisation.
The regulations will apply specifically to third-party lenders offering BNPL through merchants, where the lender and supplier differ. Certain BNPL uses, such as insurance premium financing or employee borrowing, will remain exempt.
Impact on Klarna and Clearpay
The new regulations will have a significant impact on major BNPL firms like Klarna and Clearpay. They will need to update their systems, controls, and compliance frameworks to conduct affordability assessments and meet FCA standards. They must apply for FCA authorisation or enter the TPR, ensuring ongoing regulatory oversight.
These changes may increase operational costs due to compliance and potentially limit consumer eligibility based on affordability assessments, potentially reducing risk but also loan volumes. Consumer protections will be strengthened, which might affect how these firms structure their products and customer interactions.
Protection for Consumers
The new regulations are expected to provide more protection for consumers using BNPL services. Shoppers will have the ability to raise complaints with the Financial Ombudsman and claim refunds with lenders under the new rules. Missing BNPL loan repayments can be detrimental to a person's credit score, and the new regulations aim to address this issue.
Reshaping the BNPL Market
These changes mark a major shift from BNPL services operating largely unregulated towards being treated as regulated credit products, emphasizing consumer protection and responsible lending. This will likely reshape the BNPL market structure and firm practices in the UK, including those of Klarna and Clearpay.
References
[1] HM Treasury. (2023). Buy now, pay later: consultation on regulation. [online] Available at: https://www.gov.uk/government/consultations/buy-now-pay-later-consultation-on-regulation
[2] Financial Conduct Authority. (2023). Buy now, pay later: consultation on regulation. [online] Available at: https://www.fca.org.uk/news/consultations/buy-now-pay-later-consultation-regulation
[3] The Department for Levelling Up, Housing & Communities. (2023). Buy now, pay later: consultation on regulation. [online] Available at: https://www.gov.uk/government/consultations/buy-now-pay-later-consultation-on-regulation
- To ensure compliance with the new regulations, personal-finance startups like Klarna and Clearpay must adjust their business models and follow financial regulations as Deferred Payment Credit (DPC) lenders, focusing on responsible lending practices such as conducting affordability checks and meeting the Financial Conduct Authority (FCA) standards.
- As part of the UK government's efforts to protect consumers, individuals using personal-finance services like Buy Now, Pay Later (BNPL) will have increased rights, such as the ability to make complaints to the Financial Ombudsman and claim refunds from lenders, helping to address issues related to missed loan repayments impacting credit scores.
