New legislation plans to introduce enhanced protections for buy now pay later (BNPL) products starting from 2026, aimed at safeguarding consumers in the UK. BNPL services allow individuals to spread out the cost of purchases over time, but currently lack certain consumer credit protections. Concerns have been raised about individuals potentially taking on excessive debt and overextending themselves with these services.
To address these issues, the Government has initiated a consultation on bringing BNPL companies under the oversight of the Financial Conduct Authority (FCA) and subjecting them to the Consumer Credit Act. This move aims to ensure that borrowers receive transparent information, avoid borrowing beyond their means, and have robust rights in case of any problems. Economic Secretary to the Treasury, Tulip Siddiq, highlighted that the approach would grant shoppers access to crucial protections similar to those offered by other credit products, fostering innovation in the sector.
Under the proposed regulations, the FCA will be empowered to enforce affordability assessments by requiring companies to verify borrowers’ ability to make repayments before granting a loan. Additionally, BNPL providers will be mandated to provide clear, concise, and easily understandable details about loan agreements upfront, allowing consumers to make well-informed decisions and comprehend the risks associated with late repayments. The FCA will also have the authority to formulate tailored regulations ensuring that users receive information tailored to the online environment where BNPL products are commonly utilized.
Moreover, the new rules will see Section 75 of the Consumer Credit Act come into effect in case of purchase-related issues. This section permits consumers to seek refunds from their lender and lodge complaints with the Financial Ombudsman Service (FOS). Various stakeholders have expressed support for these changes; Which? director of policy and advocacy, Rocio Concha, emphasised the necessity of clearer information, affordability checks, and avenues for redress to benefit consumers.
The consultation period is set to conclude on November 29, with the final legislation expected to be tabled in Parliament in early 2025, leading to the implementation of the regulations in 2026. Industry figures such as Michael Saadat from Clearpay and Chris Woolard, the architect of the 2021 Woolard Review, have lauded these forthcoming regulations for bolstering financial protection for BNPL users, particularly the vulnerable in society. Dame Clare Moriarty of Citizens Advice echoed these sentiments, underlining the need for swift action to establish rules that shield consumers from unsustainable borrowing practices.
The proposed reforms aim to create a structured and secure environment for BNPL services, aligning them with established consumer credit norms to promote responsible financial behaviour among users. If implemented effectively, these regulations could enhance consumer safeguards and prevent individuals from falling into unmanageable debt traps, offering a more secure financial landscape for all.