Following consultation, the UK government has laid before parliament the Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025 to bring "buy now pay later" (BNPL) products into regulation.
BNPL is a type of interest-free instalment credit which allows borrowers to split the cost of purchases into regular repayments within a 12-month period and in 12 or fewer instalments. As these agreements are unregulated, firms offering them neither need to be authorised and regulated by the FCA. nor do they have to comply with the requirements of the Consumer Credit Act 1974 (CCA).
The consultation outlined the government's proposals to bring these products into regulation. The new rules aim to ensure people using BNPL products receive clear information, avoid unaffordable borrowing, and have strong rights if there are problems. The government's approach is designed to maintain access to a popular product while adding safeguards. Only third-party lenders will be in-scope; merchant-provided instalment credit will remain exempt (subject to anti-avoidance provisions dealing with reseller-type arrangements). The consultation also explained how the regulatory regime was designed to deliver key protections for consumers, including:
- FCA oversight of firms offering BNPL products;
- allowing the FCA to apply rules on affordability and creditworthiness checks; and
- the ability for borrowers to access the Financial Ombudsman Service (FOS) and benefit from the protections of section 75 of the CCA if something goes wrong with their purchases.
The Government's proposed approach to regulating BNPL products involves first disapplying CCA provisions on information requirements that would otherwise apply to newly regulated BNPL agreements. The FCA will then be able to design and implement an information disclosure regime for BNPL in its rules. This framework will seek to improve consumer understanding and ensure the regime is appropriately tailored to BNPL products. The draft legislation only contains minor changes to the proposals previously consulted on – for example concerning the provisions applicable to BNPL firms in the temporary permissions regime (TPR) while seeking FCA authorisation.
Once the Order is made, the FCA will have 12 months to draft, consult on, and finalise its rules for BNPL lending. BNPL products will then enter regulation around mid-2026.
The FCA will consult on its proposed rules for regulating BNPL shortly. As part of that consultation, the FCA will set out its planned timelines, details of the TPR, and what firms should do to prepare for regulation.
This is a very important development for BNPL providers who should watch out for the FCA's consultation.
CCA reform
More broadly, in December 2022, HM Treasury published a consultation to seek views on the strategic approach to reform of the CCA, including the objectives, principles and overall direction. The Government is now consulting on more detailed policy proposals to reform the CCA. Due to the scale and complexity, the work will be split into two phases. The current consultation is for Phase 1, which seeks views on the proposals in relation to information requirements, sanctions and criminal offences. The consultation ends on 21 July 2025.
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