The Consumer Duty and BNPL – uncomfortable accommodation or a meeting of minds?

Earlier this year the Government laid legislation before Parliament to bring more BNPL agreements into the scope of UK regulation (see: UK to regulate buy-now, pay-later: Your next instalment is due). That legislation specifies that the new BNPL regime will start to apply on 15 July 2026, subject to transitional arrangements. The FCA has now launched CP25/23 to propose the regulatory rules that will apply to providers of BNPL agreements (see our separate post here for the specifics). 

The FCA has carefully considered whether it needs to issue prescriptive rules to cover regulated BNPL, or if it can rely on the Consumer Duty to ‘do its job’ and protect consumers. We are increasingly seeing the FCA lean on the Duty as a means of removing the need for prescriptive rules and simplifying the rulebook, both in revising existing retail regulatory regimes and when brining new areas (like BNPL) into the regulatory framework. 

The FCA is clear that it wants to be proportionate, avoiding imposing unnecessary burdens on BNPL business models given the drive to promote growth. However, it remains a conduct regulator with consumer protection a key objective. It has landed on an approach that leans on the Consumer Duty, limiting new rules and guidance to areas in which it is needed to make its expectations clear and reduce the risk of ambiguity for firms.  Before entering into an agreement, firms will be required to proactively give customers ‘key product information’ and to give, or make available, ‘additional product information’. ‘Key product information’ includes the rate of interest, amount of credit, details of payment amounts and dates and the consequences of missing a payment. ‘Additional product information’ will include details of withdrawal, cancelation and early payment rights. This is designed to ensure clarity about the information it considers borrowers will need and to cover gaps in application of the Consumer Credit Act (“CCA”) to this type of lending. 

How might the Duty apply?

Beyond this relatively narrow degree of prescription, firms will need to ensure that their regulated BNPL offering complies with the Duty across the entire product lifecycle. There are a number of features of BNPL agreements which require specific consideration here: it is a fairly simple product, offered over a short period and interest free; the customer journey is short and predominantly digital-only; customers tend to use BNPL repeatedly, building familiarity; and the product is often only offered at point-of-sale, where customers might be impatient to complete a transaction and less inclined to consider whether BNPL is the right means of funding it.

Below are some examples of the specific issues firms offering regulated BNPL will need to address, grouped under the four specific outcomes and in the context of the cross-cutting rules. 

Products and services

Key here will be having a clear, documented understanding of the target market. BNPL products need to be designed to meet the needs and characteristics of a specific group of customers – this can’t be achieved if you don’t know what they are. Almost every other element of Consumer Duty compliance rests upon having a clear understanding of the need individual products are designed to meet and how they have been designed to meet them. In the context of BNPL, the target market could be very large, but it still needs to be defined. Elements to consider include:

• The demographics and goals of those in your target market for BNPL products.
• What might prevent them opting for BNPL as a funding mechanism?
• Why might they choose a competitor firm?
• What vulnerabilities might customers in the target market exhibit, and how will you avoid exacerbating these? Recent FCA research concluded that users of BNPL are twice as likely to be in financial distress as the general population. 

Price and value

Firms will need to assess the value proposition of all aspects of BNPL lending, considering the product holistically. For example, how does the ease and convenience of offering BNPL at the point of sale provide (non-monetary) value and how might this be weighed against other costs? Is there a cost (financial or non-financial) associated with opting for BNPL as a funding mechanism when compared to alternatives? Value assessments can be challenging – thinking broadly is key.

The FCA highlights the impact of late fees here (noting that CONC requires these to be limited to a firm’s reasonable costs). A recent FCA firm survey indicated that the sector has high arrears levels with some firms deriving significant revenue from late fees - a factor that would certainly be relevant to any value assessment. The FCA has announced that BNPL lending will be subject to its creditworthiness rules in CONC 5.2A, a measure intended to reduce arrears rates. 

Customer understanding

As mentioned above, here we do have some BNPL-specific prescriptive rules sitting alongside the Duty. The obligation on BNPL lenders to give customers ‘key product information’ (and make available ‘additional product information’) displaces rules about adequate explanations in CONC 4.2. 

Consumers will need clear information about cancellation rights, late/missed payment charges, any impact on credit ratings if a payment is missed and an opportunity to reflect on the terms they on which BNPL is being offered (which is particularly challenging given the short customer journey here). The FCA will want to see evidence that the information given to consumers is likely to be understood. Testing and monitoring will be a vital means of building an evidence base to demonstrate that you are acting to deliver this outcome. 

The efficacy (or otherwise) of communications will be key to the success of BNPL products under the Duty. Effective design of the online tools through which customers access these products can support customers understanding about how BNPL works and whether it is a good option for them. The key here is to give enough information to enable customers to make informed decisions – overloading them is likely to prompt disengagement. The FCA states in the CP that it is not proposing to specify how firms convey information here. It wants firms to maximise customer engagement in a way ‘best suited to the digital mediums through which the product is typically provided’. The CP identifies practices that may support customer understanding, including the use of infographics and using links within key information to further detail (layering).

Support

Challenges here will include the online-only customer journey and the need to manage customers in financial difficulties. Prompt offers of forbearance are key to mitigating the risk of customer harm. The FCA states in its CP that CONC 7 (which sets out the FCA’s expectations of how firms treat customers facing payment difficulties) should be considered alongside its new rules around information to be provided to customers who have missed payments. The FCA wants firms to treat customers in, or approaching, arrears or in default with forbearance and due consideration. Firms may wish to consider introducing helplines or other options for customers to engage with support staff ‘face to face’, to facilitate more tailored support for borrowers who are struggling. 

Understanding bias

Given that BNPL is predominantly offered online, its important to consider the particular risks of harm this generates, in particular, the impact behavioural biases may have on outcomes. Cognitive and behavioural biases have featured in the FCA’s work since its inception. It recognises that these may compromise individuals’ ability to make decisions in their best interests. The Duty requires firms to understand and account for those biases, alongside any vulnerability and customers’ lack of knowledge or information asymmetries.

A firm that exploits biases would breach the Consumer Duty’s cross-cutting rules.  These are:

• Acting in good faith.
• Avoid causing foreseeable harm.
• Enable and support customers to pursue their financial objectives.

Firms are required to support good decision-making both proactively and reactively by recognising and taking account of biases, and creating the “right environment” for informed decisions. Used positively, biases can be used to ‘nudge’ individuals to make better decisions. They can also be exploited to encourage consumers to act against their own interests in a way that benefits firms. 

Biases may feature negatively in online-only customer journeys in the following ways:

• Sludge - putting friction and obstruction between the user and their desired outcome (for example, cancelling a subscription).
• Sneaking - for example, revealing an extra cost at the last possible moment.
• Website design patterns that rush users, or otherwise apply pressure to perform a certain action, appealing to scarcity bias.
• Positioning and prominence - layouts that give visual precedence to the options that benefit the product not the consumer.

Positive approaches generally turn these negative applications on their head. For example, structuring a user experience journey that front-loads all information about fees and charges before asking the user to invest time and effort in onboarding. Or - flipping visual deception on its head - giving choices equal prominence within a user interface, or even drawing attention to choices that may benefit the customer or are important for the customer to make to avoid additional cost. Not only will this type of approach ensure compliance with the Duty, it will also build trust with consumers. As the marketplace for BNPL options becomes more crowded, becoming the option in which consumers place most confidence is a competitive advantage worth having.