New buy now pay later protections set to come into force from 2026

Shoppers will be protected by new rules for buy now pay later (BNPL) products from 2026 under Government plans.

BNPL products allow people to spread the cost of purchases over time, but borrowers currently do not have access to some protections provided by other consumer credit products.

There have been concerns that people can end up over-stretching themselves by taking on too much debt.

The Government has launched a consultation on bringing buy now pay later companies under the supervision of the Financial Conduct Authority (FCA) and applying the Consumer Credit Act, to help ensure borrowers receive clear information, avoid unaffordable borrowing and have strong rights when issues arise.

Economic Secretary to the Treasury Tulip Siddiq said: “Our approach will give shoppers access to the key protections provided by other forms of credit while providing the sector with the certainty it needs to innovate and grow.”

The new rules will allow the FCA to apply rules on affordability, meaning companies will be required to check that shoppers are able to afford repayments before offering a loan, to help prevent people building up unmanageable debt.

Companies will also need to provide clear, simple and accessible information about loan agreements in advance so that shoppers can make fully informed decisions and understand the risks associated with late repayments.

The FCA will be able to consult on bespoke rules that ensure users are given information in a way that is tailored to the online setting in which buy now, pay later products are generally used, the Government said.

Under the plans, Section 75 of the Consumer Credit Act will apply if something goes wrong with a purchase.

Section 75 allows consumers to claim refunds from their lender, and access to the Financial Ombudsman Service (FOS) to make complaints.

Rocio Concha, Which? director of policy and advocacy, said: “Our research found that many BNPL customers do not realise they are taking on debt or consider the prospect of missing payments, which can result in uncapped fees, so clearer information about the risks involved as well as the use of affordability checks and options for redress would be a win for consumers.

“We are keen to see legislation quickly passed to ensure that BNPL users are protected as strongly as consumers using other credit products.”

Michael Saadat, international head of public policy at provider Clearpay said: “We have always called for fit-for-purpose regulation that prioritises customer protection, delivers much-needed innovation in consumer credit and that sets high industry standards across the board.

“We will continue to support the Government and the FCA to deliver fit-for-purpose regulation that ensures consumers are protected in a way that supports the UK’s thriving fintech sector.”

Chris Woolard, author of the 2021 Woolard Review, which looked at change and innovation in the unsecured credit market, said: “Today marks a significant milestone for consumer-focused financial regulation.

“The proposed package of regulation would implement the recommendations of the review and mean millions of people up and down the UK will benefit from stronger financial protection as they borrow using BNPL, especially the most vulnerable in society.

“The incoming regulation will also provide long-term certainty and standards for the market.”

The consultation will close on November 29. Final legislation is expected to be laid in Parliament in early 2025, with the rules taking effect in 2026.

Justin Basini, co-founder and chief executive of the ClearScore Group said: “We welcome this consultation to bring buy now pay later borrowers under the same protections and creditworthiness assessments as other mainstream financial products such as credit cards and loans.

“It is a sensible step in ensuring that this new, important form of credit continues to provide much-needed flexibility for consumers while also managing any risks.”

Dame Clare Moriarty, chief executive of Citizens Advice, said: “We’ve long called for regulating the buy now pay later market and are glad to see the Government making this a priority.

“We know the difference this can make to so many people’s lives. Compared with two years ago, our advisers are helping more than twice as many people with a BNPL issue. Many are struggling to repay credit they can’t afford or falling behind on essential bills or needing emergency support, like food bank vouchers.

“Proper regulation can prevent this spiral. The Financial Conduct Authority must act swiftly to set rules that protect consumers from unaffordable borrowing once the necessary legislation is in place.”

Around a fifth (21%) of those who have approached Citizens Advice with a BNPL issue have also needed a food bank referral or other charitable support, the charity said.

Richard Lane, chief client officer at StepChange Debt Charity, said: “BNPL can be a useful form of credit for those looking to manage chunky expenses but, as with every other form of credit, it needs to be bound by consistent rules that minimise consumer harm.

“We need to see BNPL providers introduce proper affordability checks and end aggressive marketing at checkout, which can lead to impulse decision-making and can cloud consumers’ judgment on affordability.

“As cost-of-living pressures continue to burden millions of households, consumers need more protection, not less. A properly regulated BNPL sector will go some way to facilitating that.”