Buy now pay later customers taking out deals will have a new safety net from July 15, as the sector comes under the supervision of the City regulator.
Here is a look at how buy now pay later works and what changes customers can expect to see:
– 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.
– Sounds simple, so 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.
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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.
