UK Government Approach to Regulating Buy-Now, Pay-Later (BNPL) Products

Introduction

The UK government has announced the much-awaited plans to regulate Buy-Now, Pay-Later (BNPL) products to ensure consumer protection and market certainty. BNPL allows consumers to split the cost of purchases into regular repayments over a short period, typically interest-free. While BNPL can be a helpful financial tool, consumer groups have highlighted that it also poses risks such as high levels of indebtedness and inconsistent treatment of customers in financial difficulty.

Policy Objectives

The government’s approach to regulating BNPL is guided by five key principles:

• Consumers must have access to simple, clear, understandable, and accessible information.
• Consumers should have protection when things go wrong.
• Consumers should only be lent to if it is affordable.
• Regulation should be proportionate to ensure continued access and choice.
• Regulation must be introduced urgently to ensure consumers are protected and the sector has certainty.

Legislative Changes

The government intends to bring BNPL products into Financial Conduct Authority (FCA) regulation through secondary legislation. This includes disapplying certain information requirements in the Consumer Credit Act (CCA) that may cause confusion for BNPL agreements. The FCA will develop a modernized disclosure regime for BNPL agreements in line with Consumer Duty, ensuring clear and timely information for consumers.

1. FCA Authorisation & Supervision

• Mandatory Authorisation: All third-party BNPL lenders must be authorised by the Financial Conduct Authority (FCA).
• Scope: This includes firms entering into BNPL agreements, servicing them, or brokering them in domestic premises.
• Supervision: Once authorised, firms will be subject to ongoing FCA supervision, including compliance with the FCA Handbook and Consumer Duty.

2. Consumer Protections Introduced

• Consumer Duty
  • BNPL firms must ensure communications are clear, fair, and not misleading.
  • Firms must support good consumer outcomes throughout the product lifecycle.
  • The FCA will develop a modernised disclosure regime tailored to BNPL, replacing outdated Consumer Credit Act (CCA) requirements.
• Section 75 CCA Protections
  • Consumers will have joint and several liability protections for purchases between £100 and £30,000.
  • This means they can claim against the lender if the supplier misrepresents or breaches the contract.
• Access to the Financial Ombudsman Service (Financial Ombudsman Service (FOS))
  • Consumers will be able to escalate complaints to the Financial Ombudsman Service (FOS).
  • The FCA will apply its DISP rules (Dispute Resolution: Complaints) to BNPL firms.

3. Affordability & Creditworthiness Assessments

• BNPL lenders must assess the affordability and suitability of credit for each consumer.
• The FCA will determine how its CONC rules (Consumer Credit sourcebook) apply to BNPL.
• Firms must also consider mental capacity and vulnerability in line with CONC 2.10.

4. Disapplication of CCA Provisions

• Why Disapply Cca Provisions?
  • The CCA was designed for traditional, often interest-bearing credit products. BNPL, by contrast, is:
  • Interest-free
  • Short-term (≤12 months)
  • Digitally native, often embedded at point-of-sale
  • Applying the full CCA framework to BNPL would introduce rigid, outdated requirements that could:
  • Confuse consumers (e.g. legalistic language, irrelevant disclosures)
  • Disrupt digital user journeys
  • Impose disproportionate compliance burdens on firms
  • The government’s approach is to disapply specific CCA sections and allow the FCA to create a modern, tailored regime under its Consumer Duty framework.
• What’s being disapplied?
  • The disapplied provisions fall into several categories:

• What Replaces These Provisions?
  • The FCA will use its powers to implement a modern disclosure and conduct regime, including:
  • Consumer Duty: Ensures clear, timely, and relevant information
  • CONC rules: Governs affordability, forbearance, and customer support
  • Digital-first design: Enables mobile-friendly, accessible disclosures
  • This approach is intended to enhance consumer understanding and reduce harm, without stifling innovation or access.
• Risks And Mitigations
• • Loss of statutory sanctions: Some CCA breaches currently render agreements unenforceable. These will not apply under FCA rules.
  • Mitigation: FCA oversight, Financial Ombudsman Service (FOS) access, and private rights of action under FSMA will provide strong enforcement levers.
  • Inconsistency with other credit products: Some stakeholders worry about regulatory fragmentation.
  • Mitigation: The government plans to address this in the broader Consumer Credit Act reform.

5. Financial Promotions & Credit Broking

• Merchants offering BNPL must have their promotions approved by an authorised firm.
• Credit broking by merchants is exempt unless done in a consumer’s home (e.g. domestic premises suppliers).
• The Financial Promotions Order will be amended to reflect these changes.

6. Temporary Permissions Regime (TPR)

• Firms can register for a TPR to continue operating while applying for full FCA authorisation.
• Regulation Day: 12 months after the legislation is passed.
• TPR firms will be deemed authorised and must comply with FCA rules during the transition.

Stakeholder Impacts

The regulation of BNPL products will impact various stakeholders: BNPL providers will need to seek FCA authorization and comply with new rules, which may involve changes to their systems and processes.

Consumers will benefit from stronger protections, clearer information, and access to the Financial Ombudsman Service (Financial Ombudsman Service (FOS)) for complaints.

Merchants offering BNPL as a payment option will need to ensure their promotions are approved by an authorized person, mitigating potential consumer detriment.

How Huntswood Can Help

Huntswood is uniquely positioned to support organisations navigating regulatory change through a comprehensive suite of services that combine deep regulatory expertise with operational excellence. Leveraging a team of industry specialists, Huntswood provides expert guidance on interpreting and implementing complex regulatory requirements.

This is complemented by robust programme and project management capabilities that ensure timely, compliant, and cost-effective delivery. Huntswood also offers advanced technology solutions to streamline compliance processes, scalable resourcing to flex with demand, and end-to-end business process outsourcing (BPO) services that enable firms to maintain focus on core operations while ensuring regulatory obligations are met with precision and agility.