Buy now, pay later lenders must now check that people can afford to repay their loans, a consultation put forward by the Financial Conduct Authority (FCA) says.
Providers should also offer support if customers get into financial difficulty, in greater protections revealed by the FCA.
Borrowers will also be able to complain to the Financial Ombudsman Service if something goes wrong.
The rules, giving consumers more transparency over what this type of borrowing involves, would take effect when buy now, pay later (BNPL) comes under the FCA’s remit next year.
The new oversight by the FCA would mean that BNPL borrowers will have key protections that already exist for other types of lending.
The FCA also oversees the Consumer Duty, which requires financial firms to put consumers at the heart of what they do, including when designing products and communicating with their customers.
Sarah Pritchard, deputy chief executive at the FCA, said: “We have long called for BNPL products to be brought into our remit, so people can benefit from BNPL while being protected.
“Our regulation will help consumers navigate their financial lives, with checks on whether they can afford to repay, support when things go wrong and access to the right information to make informed decisions.
“We’re mainly relying on existing requirements, including the Consumer Duty, rather than proposing to make lots of new rules, supporting growth and allowing firms to innovate.”
BNPL products are a way for people to spread the costs of purchases without paying interest. BNPL options regularly pop up at online checkouts.
But concerns have been raised that some people could end up taking out loans that they cannot afford to pay back on time, incurring charges.
According to the FCA’s research, one in five (20%) UK adults – equating to 10.9 million – had used BNPL at least once in the 12 months to May 2024, up from 17% in 2022.
In May 2024, 2% of UK adults (equating to 1.1 million) had £500 or more outstanding unregulated BNPL debt, and 11% of UK adults (5.3 million) had £50 or more outstanding, the regulator found.
The FCA’s consultation is open for feedback until September 26 2025.
A temporary permissions regime will be open for firms to register two months before the regime comes into force on July 15 2026.
Firms will then have six months from the date the regime comes into force to apply for full authorisation.
BNPL is a broad term which can include some credit agreements that are already regulated, the FCA said.
Its new proposals relate to unregulated BNPL agreements, referred to as deferred payment credit (DPC).
The Government has made legislation to bring DPC products under FCA regulation.
DPC refers to unregulated interest-free credit, which finances the purchase of goods or services and that is repayable in 12 or fewer instalments within 12 months or less.
Lenders who only provide DPC do not currently need to be FCA authorised, leading to concerns that some borrowers may not be receiving enough information about what credit agreements involve.
Alison Walters, interim director of consumer finance at the FCA, told the PA news agency: “Our proposals are aimed at ensuring that consumers get good consumer outcomes and that there is an appropriate degree of consumer protection.
“And by that, we mean that consumers get the right information, in the right way, at the right time, so that they can make an informed decision about their buy now, pay later lending.”
She continued: “What we’re asking in our rules is for firms to carry out an affordability check, to ensure that consumers are able to pay. And if they get into financial difficulty to provide them with an appropriate level of support.
“We also want them to give more information in relation to late fees, consequences if they miss a payment, and impacts, for example, if it may affect credit ratings.
“And also information about their withdrawal and cancellation rights.”
She added: “If something goes wrong, consumers will be able to refer their complaint to the Financial Ombudsman Service.”
Ms Walters said that in terms of supporting those in financial difficulty: “Under our existing rules, firms can offer forbearance to consumers if they get into financial difficulty.”
She said that could include changes in the payment plan and people can also be signposted to debt advice or other support mechanisms.
Ms Walters added that under the new rules “we still think that this market will be viable and profitable”.
She pointed out that the BNPL market has already grown in size and popularity.
According to the regulator, DPC lending has grown from £0.06 billion in 2017 to more than £13 billion in 2024.
A Klarna spokesperson said: “After five years of constructive work with HMT (HM Treasury), we’re entering the home straight to make BNPL regulation a reality – a major win for UK consumers.
“We’re looking forward to working with the FCA on rules that protect consumers while keeping choice and innovation at the heart of the UK credit market.”
A spokesperson at BNPL provider Clearpay said: “We will support the FCA as it consults on and finalises its specific rules for the sector.”
The spokesperson said regulation “will establish a consistent operating environment and clear compliance standards for all providers,” adding: “Clearpay research highlighted that nearly half of UK adults (48%) are more likely to use BNPL once regulation is passed, and with 71% believing that it is important for BNPL to be subject to UK financial legislation, today’s announcement will help foster trust among consumers.
“It will also create a more sustainable foundation for the future of BNPL as it continues to grow as an everyday payment option for consumers.”
Vikki Brownridge, chief executive of StepChange Debt Charity, said: “It’s incredibly reassuring to see the FCA’s consultation on its proposed approach to regulating buy now, pay later.”
She added: “Whilst BNPL can be a useful budgeting tool, it can deepen debt problems, and it is important struggling consumers are afforded the same level of protection as for other forms of credit.
“Bringing BNPL firms in line with the wider credit market, when regulation begins next year, will provide an added layer of protections for consumers, a much-needed change as StepChange polling found that BNPL users are twice as likely as all credit users to borrow to cover essential bills, and our research also found that BNPL is now as common as using an overdraft amongst UK adults.”
Vix Leyton, a consumer expert at app ThinkMoney, said BNPL “can be a really useful tool, particularly when life throws you an unforeseen cost that drives a wrecking ball through your budget.
“But while spreading the cost can take the pressure off, it’s temporary relief if it’s not done responsibly and mindfully.”
She added: “Proper affordability checks, in line with other credit products, are vital to stop people unintentionally kicking the financial can down the road, as is making sure that those in financially vulnerable positions understand the consequences of missed payments.”
Rocio Concha, Which? director of policy and advocacy, said: “Buy now, pay later can be a really convenient way to spread the cost of items, but because it is not yet regulated, it hasn’t come without risk to consumers.
“Regulation will mean that consumers will be subject to affordability checks to ensure responsible lending as well as making sure they are given sufficient information about the credit they are taking on and the risk of falling into debt.”
