UK to regulate buy-now, pay-later: Your next instalment is due

The Government has taken the next step towards regulating buy-now pay-later. It is laying the legislation that will bring BNPL agreements into the scope of UK regulation and enable the Financial Conduct Authority to set rules for BNPL providers. The new regime will take effect next year, subject to transitional provisions.

Tightening exemptions

BNPL providers typically rely on exemptions to consumer credit regulation. New legislation will tighten these exemptions. This means that third-party BNPL providers will need to seek authorisation from – and then be supervised by – the Financial Conduct Authority.

BNPL provided by merchants will remain exempt. The Government will keep merchant-offered credit under review in case it identifies consumer harm in this market.

Changes to legislation

The changes will be made by the Financial Services and Markets Act 2000 (Regulated Activities etc.) (Amendment) Order 2025. The Order will be made law once approved by both Houses of Parliament, which should be a formality.

The Government consulted on a draft version of the Order last year and has now published a consultation response in which it summarises the feedback it received and sets out its final position on the proposals. The response does not indicate extensive changes to the previous draft.

As expected, BNPL customers will be given the right to complain to the Financial Ombudsman Service (FOS) and will also benefit from protection under section 75 Consumer Credit Act. BNPL providers will not need to apply the CCA’s information disclosure regime but will be subject to rules set by the FCA.

BNPL-specific rules to follow

The next stage is for the FCA to draft the rules that will apply to BNPL providers under the new regime. This is expected to include extending existing rules such as the Consumer Duty and rules on arrears and forbearance. It will also mean setting BNPL-specific requirements on information disclosures, and affordability and creditworthiness checks.

The Government has instructed the FCA to finalise the regime within the next year. The FCA consultation will suggest timelines and how firms should prepare for regulation. This will include more detail about how the temporary permissions process will work for existing providers seeking to transition into the new regime.

More credit reform to come

Meanwhile, the Government says it is working “at pace” to modernise existing consumer credit legislation. As part of a consultation on Phase 1 of reforms to the Consumer Credit Act, it proposes repealing the CCA’s information disclosure requirements and recasting them into FCA rules. The deadline for responses is 21 July 2025.