The FCA has announced that Buy Now, Pay Later firms must conduct affordability checks under new rules taking effect in July 2025.
The regulatory changes are intended to address concerns about rising consumer debt and the ease with which individuals can currently access short-term credit. The Financial Conduct Authority (FCA) will oversee the regulation following legislation that enables it to supervise the sector. This comes after repeated calls from debt charities and consumer advocates for greater protection in what has been described as a loosely regulated market.
Unregulated at the time of writing, BNPL products let consumers defer payments or split them into interest-free instalments, typically over a period of 12 months or less. Companies such as Klarna offer these options at checkout for a wide range of goods, from fashion to electronics, through partnerships with major retailers.
According to the FCA, roughly 11 million people in the UK used a BNPL service in the year leading up to May 2024. Among adults aged 25 to 34, nearly a third reported using it at least once. Survey data indicated these services were most often used for non-essential purchases, including beauty products and personal treats.
New rules target affordability and transparency
Under the proposed framework, lenders will be required to ensure borrowers can afford repayments, though they will have discretion over how checks are conducted. FCA representatives noted that companies must assess affordability but may tailor methods depending on their digital platforms.
In addition to affordability assessments, the regulation will mandate clearer information on fees, cancellation rights, and the consequences of missed payments, including effects on credit scores. Consumers will also gain access to the Financial Ombudsman for complaints and receive quicker refunds when returning items bought through BNPL.
A representative from the FCA acknowledged that not all applicants will qualify under the new rules and noted that lenders should direct consumers to appropriate support options, such as debt advice, if they are declined credit.
BNPL firms have indicated general support for regulation, provided it allows for flexibility and innovation. A Klarna spokesperson said the company had been working with the Treasury on the matter for several years and looked forward to collaborating with the FCA. Clearpay described the move as laying the groundwork for a more sustainable BNPL model in the UK.
