Last week we reported that the UK government had made legislation to bring deferred payment credit (DPC) or "buy now pay later" (BNPL) products into FCA regulation. These products are unregulated interest-free credit that finances the purchase of goods or services and that is repayable in 12 or fewer instalments within 12 months or less.
BNPL products are currently exempt from regulation. Lenders who only provide them do not currently need to be FCA authorised. There are concerns that this may result in borrowers not getting sufficient information about DPC agreements. There are also concerns DPC borrowers may not be able to afford it, particularly as they are more likely to be in financial difficulty compared to the general population.
As a consequence, from 15 July 2026, lenders who offer a DPC agreement to finance the purchase of goods or services from a merchant will be regulated by the FCA. However, merchants that offer their own DPC agreements directly will not, and neither will the broking of DPC agreements.
The FCA is now consulting on rules and guidance for the DPC sector. In particular, the FCA is consulting on:
- Information requirements: the FCA wants to make sure that consumers are given information that helps them make effective, timely and informed decisions about DPC borrowing before they enter an agreement, and throughout the life of the agreement. This also applies where a customer misses a payment or otherwise faces financial difficulty.
- Creditworthiness: The FCA wants DPC lending to be affordable. It has set out how it intends to apply existing rules and guidance on creditworthiness to DPC. The FCA expects firms to do proportionate creditworthiness assessments, so that borrowers can keep up repayments without harming their financial wellbeing.
- High‑level standards and the FCA's existing consumer credit rules: The FCA wants the firms who offer DPC to operate to high standards and act to deliver good outcomes for consumers. The consultation covers how it plans to apply existing high‑level standards to DPC, including the Consumer Duty. The FCA also explains where and how the FCA proposes that their existing rules for consumer credit firms will apply to DPC.
- Dispute resolution: The FCA intends that BNPL consumers to have access to an independent, impartial dispute resolution service. The consultation sets out how it proposes that firms meet the FCA's complaints-handling rules and how consumers will have access to the Financial Ombudsman Service to escalate complaints.
- Data reporting: As the FCA does not currently regulate the sector, it does not routinely receive data from firms about their DPC activity. It needs better and more up‑to‑date information about the BNPL sector and customer outcomes to help it to regulate efficiently and minimise burdens caused by bespoke data requests. Therefore, the consultation includes proposals on the data that DPC lenders will report to the FCA so that it can effectively supervise them, including product sales data.
There will be a temporary permissions regime in place. This means firms will need to follow FCA rules and will be able to continue to trade before they are fully authorised.
The consultation ends on 26 September 2025. The FCA plans to issue a Policy Statement with final rules in early 2026. Regulation will take effect from 15 July 2026, by which time firms offering DPC will either need to be fully authorised by or have temporary permission from the FCA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
