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Customers using ‘Buy Now Pay Later’ loans will benefit from greater protections from this summer, when these schemes will be regulated by the Financial Conduct Authority for the first time.
The new protections are designed to raise consumer awareness around these loans and prevent irresponsible lending practices.
So-called ‘BNPL’ schemes have become increasingly popular in recent years, as they allow customers to spread out a payment if they can’t afford it upfront. Last year 45% of Brits used BNPL services, according to Finder.com, with one in six (17%) using BNPL for the first time. This type of scheme now accounts for 8% of all physical and online payments in the UK, and this is forecast to grow to 9% by 2030.
However, these products have so far been unregulated, and borrowers lack the kinds of protections that they usually would benefit from when taking out a loan. Not only this, but there are concerns that the advertising for these products is not always completely transparent, and borrowers aren’t always fully aware of what they’re signing up for.
With the cost of living surging in the UK and many struggling financially, the government’s planned changes have been positively received, though there is concern that they haven’t acted quickly enough.
How do ‘Buy Now Pay Later’ schemes work?
BNPL schemes allow customers to buy a given product and defer paying for it, either repaying the outstanding amount in instalments or all at once at a later date.
These types of loans are interest-free, which makes them particularly tempting, as you only pay the cost of the item itself, and nothing on top. However, missing a repayment usually results in late payment charges and damages your credit score, making it hard to apply for a mortgage or other forms of borrowing.
It is also argued that BNPL schemes tempt customers into buying items they can’t afford, spending money that they wouldn’t otherwise and landing them in financial trouble. This is why the model has become so popular among retailers in recent months, who offer the schemes to customers via lenders like Klarna and ClearPay.
This problem has been exacerbated by the fact that lenders are currently not required to subject BNPL customers to credit checks, which are normally a standard procedure when you apply for a loan or credit card. This means that customers with histories of missed repayments and debt problems usually have nothing stopping them from using these schemes.
Peter Tutton, Director of Policy, Research and Public Affairs at StepChange Debt Charity, said: “Buy Now, Pay Later can be a helpful way for people to spread costs. But like any form of credit, it carries risks when repayments become difficult. The absence of FCA regulation until now has only heightened the risk of financial harm for those relying on BNPL.
“Going forward people using BNPL products will be protected by affordability checks, consistent support from lenders and access to the Financial Ombudsman if things go wrong – these are all essential safeguards for borrowers using any type of credit.
“We would urge anyone using BNPL to always double-check that the repayments will be affordable.”
Read more about these products in our article How do ‘Buy Now Pay Later’ schemes work?
What changes are being made?
The changes happening this summer will bring the rules for Buy Now Pay Later products in line with other kinds of loans and increase consumer protections.
With effect from 15 July 2026, lenders will need approval from the Financial Conduct Authority (FCA) in order to offer Buy Now Pay Later loans in the first place. They will also need to perform affordability checks on potential customers to make sure that they will actually be able to pay off the loan and not spiral into debt.
Sarah Pritchard, deputy chief executive at the FCA, said: “We want the Buy Now Pay Later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products. But crucially, no one should be lent to if they’re unable to repay because that could worsen their financial situation. Now parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”
Customers will be able to take complaints to the Financial Ombudsman if they feel they have been treated unfairly, again with this kicking in on 15 July. The Ombudsman is an official body that can investigate financial issues for you and seek to resolve them with the company in question.
Lenders will also have to make sure that their advertising is “fair, clear and not misleading”, so that customers will have enough knowledge to make an informed choice.
Importantly, anyone using BNPL from 15 July onwards will benefit from valuable Section 75 Consumer Credit protection. Section 75 essentially means that if something goes wrong with something you’ve purchased using a BNPL arrangement, such as the item not arriving or being faulty, then the retailer and your BNPL company have the same responsibility towards you. So if the retailer won’t give you your money back, the BNPL company might, basically giving you an extra layer of protection. Credit cards already provide this protection. You can find out more about how it works in our guide Section 75 protections explained.
If you’re struggling with debt
If you’re in debt and aren’t able to pay back what you owe, it’s vital that you seek help as soon as possible. Contact your lenders and let them know you’re struggling to make your repayments – they might be able to arrange a more affordable repayment plan with you.
For more information you can read our guides on tried and tested ways to cut costs or ideas to help with budgeting if you’ve suffered a fall in income.
If you need further help, get in touch with one of the charities specialising in free debt advice. These include StepChange, National Debtline and the Debt Advice Foundation. You can find out more about your options if you’re in serious debt here.
The most important thing is that you seek help as soon as you can, to avoid problems building up and to enable you to take back control.
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