Millions of customers who use Buy Now Pay Later (BNPL) services are set to benefit from significantly enhanced protections from Wednesday.
From July 15, the sector will fall under the regulation of the Financial Conduct Authority (FCA), and lenders will need to be authorised by the regulator to provide BNPL products.
BNPL firms will also be subject to the Consumer Duty, which requires financial firms to put customers at the heart of what they do, and which is overseen by the FCA.
“Buy now pay later can be a form of credit, but people deserve to be protected when using it. Lenders should check their customers can afford to pay it back,” a FCA spokesperson said.
The spokesperson said customers will get clearer information before they sign up and “better support if something goes wrong”.
While BNPL options help people spread the cost, concerns have also been raised about people being able to run up significant debts by making multiple BNPL purchases.
The BNPL market has grown significantly in recent years to over £13 billion in 2024, the FCA said previously.
According to its 2024 Financial Lives Survey, 20 per cent of UK consumers, equating to 10.9 million adults, used BNPL in the 12 months to May 2024.
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Under the changes, people will be able to take their complaints about BNPL to the Financial Ombudsman Service (FOS).
Complaints about BNPL must relate to agreements taken out on or after July 15 and be about regulated firms.
Potential BNPL gripes taken to the ombudsman may include whether the lending was affordable and whether the customer understood the agreement.
James Dipple-Johnstone, interim chief ombudsman for the Financial Ombudsman Service (FOS) said: “This is an important step for consumers who use buy now pay later.
“If something goes wrong and they cannot resolve the issue with their provider, they now have access to our free and impartial service.
“As new financial products become part of everyday spending, it is vital that consumer protection keeps pace.
“We have worked closely with the FCA to make sure we are ready to handle these complaints fairly and efficiently and have engaged with firms to ensure they understand our approach.”
In its most recent plans and budget, the Financial Ombudsman Service said it anticipates around 2,000 complaints from buy now pay later users in this financial year.
The FCA’s regulation of BNPL will require lenders to provide clear upfront information about the agreement, including when payments will be due, amounts, and what happens if they miss a payment. Firms will need to assess consumers’ creditworthiness, including affordability.
They will also need to support consumers in financial difficulty, including pointing them to free debt advice where appropriate.
BNPL agreements may be reported to credit reference agencies, which could potentially mean they are taken into account by some lenders in future lending decisions.
Dimitar Lazarov, head of Credit Karma UK said that while this could help people who typically pay their BNPL loans on time, those who may fall behind on payments should be aware that “it could have an impact on their ability to apply for other products”.
John Webb, head of consumer affairs, Experian UK and Ireland, said people should remember that when they open a new BNPL account, this may be taken into account on credit reports by lenders when they are considering new borrowing applications “such as a loan, credit card or mortgage”.
A spokesperson at BNPL provider Clearpay said it welcomes the regulation, saying it “will help establish a consistent operating environment and clear standards for all providers”.
The spokesperson said: “Millions of consumers rely on BNPL for short-term and interest-free credit to make everyday purchases.
“We will continue to provide our existing safeguards that customers have long valued, including pausing accounts if a single payment is missed and capped late fees.”
A spokesperson for BNPL provider Klarna said: “Klarna’s called for regulation since 2020, so we welcome this moment.
“The FCA’s rules largely formalise what we already do – we run affordability checks, show costs up front and report to credit reference agencies.”
The Klarna spokesperson added: “Robust regulation that gives consumers added confidence and strengthens their access to protections is a good thing.”
Vikki Brownridge, chief executive at StepChange Debt Charity, said: “There’s no doubt that BNPL can be a useful form of credit – especially as it’s usually short-term and interest-free – to spread the cost of a bulky expense.
“However, as with any form of credit, regulation is vital to protect customers if something goes wrong, and ensure people aren’t being offered credit where it’s not affordable – something which will trigger debt problems, as we see all too often.
“Consumers can go on using BNPL in the same way as before, but it’s important to be aware of the new protections.
“If you are finding yourself struggling to keep up with payments, rather than taking on more credit or BNPL agreements, we would always advise seeking free and impartial debt advice to help get back on track.”
Key changes happening for buy now pay later customers
How does buy now pay later (BNPL) work?
BNPL options often appear at online checkouts, and they allow shoppers to spread the cost of their purchase without paying interest, rather than having to make a payment all in one go.
Why has BNPL been controversial?
For many people, using BNPL will ease cost pressures by spreading payments into more palatable chunks.
But for some, it may have led to spending more than they intended to.
Some people may have also found their budget has been quickly swallowed up by multiple BNPL loans. This could also mean some people turning to debt which does incur charges, such as overdrafts, to cover the cost of their BNPL debt.
So what key changes are being made from Wednesday?
The sector will be overseen by the Financial Conduct Authority (FCA) and subject to its regulation.
This means firms will be required to give customers clear, upfront details about their agreement, including when payments will be due, amounts, and what happens if they miss a payment.
Lenders must carry out proportionate checks to make sure customers can afford to repay what they borrow before offering BNPL.
People may find that their BNPL use is taken into account by lenders using credit reports to make future lending decisions – which may have a positive or a negative impact depending on the borrower’s financial behaviour.
Firms will need to offer support to customers in financial difficulty, and, where appropriate, direct them to free debt advice.
Some BNPL providers have said they already offer strong protections for consumers and have welcomed regulation as a way of levelling the playing field.
What if I want to complain?
BNPL customers will have the option to be able to complain to the Financial Ombudsman Service (FOS) if they wish to, for example if they are unhappy with the affordability of the agreement.
The ombudsman service settles disputes between consumers and regulated financial businesses and is free for consumers to use directly themselves.
Consumers will be able to take a complaint to the ombudsman as long as the complaint is about agreements taken out on or after July 15 2026 and the complaint is about a regulated firm.
Customers will need to complain to their BNPL provider first and if they are unhappy with the response, they can submit a complaint to the FOS.
What if I am worried about debts?
Buy now pay later may make it more tempting to make more purchases or spend more than initially budgeted for, but charity StepChange suggests pausing to consider whether you would still be buying the items in the first place if they were not available on credit.
The charity also suggests keeping a note of payments and the terms of each loan agreement to make sure this fits with your budget and that you will not have to cut back on essentials.
This could be particularly helpful for people with multiple debts.
People who are struggling with loans should contact their lender and support is also available from various organisations, such as StepChange, Citizens Advice, Christians Against Poverty and the National Debtline debt advice service run by the Money Advice Trust.
