Major Regulatory Shift for Buy Now Pay Later Services
The Financial Conduct Authority (FCA) will implement comprehensive new regulations governing Buy Now Pay Later (BNPL) services starting July 15, 2026, marking a significant transformation in consumer credit protection for approximately 11 million British users.
Enhanced Consumer Safeguards
Under the forthcoming regulatory framework, BNPL providers including industry leaders Klarna, Clearpay, and PayPal Pay in 3 must obtain formal authorization from the FCA to continue operating. These companies will be bound by the Consumer Duty, which mandates that financial firms prioritize customer interests throughout all aspects of their operations, from product development to communication strategies.
The new regulations will require providers to conduct thorough affordability assessments before extending BNPL credit to consumers. Additionally, companies must deliver transparent, upfront information about repayment schedules, payment amounts, and the consequences of missed payments. Customers experiencing financial difficulties will receive targeted support and referrals to free debt guidance services.
Addressing Market Growth and Concerns
The BNPL market has experienced explosive growth in recent years, reaching over £13 billion in transaction volume during 2024. According to the FCA's 2024 Financial Lives Survey, approximately 20% of UK adults—representing 10.9 million consumers—utilized BNPL services in the twelve months preceding May 2024.
Despite this popularity, concerns have mounted regarding potential financial overextension among users. The absence of formal regulation has left consumers vulnerable to accumulating unsustainable debt without adequate protections or recourse mechanisms.
Industry and Advocacy Responses
Sarah Pritchard, Deputy Chief Executive at the FCA, emphasized the balanced approach of the new regulations: "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."
Peter Tutton, Director of Policy at StepChange Debt Charity, welcomed the regulatory changes: "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."
Rocio Concha, Which? Director of Policy and Advocacy, noted: "Which? has campaigned for years for BNPL to be regulated and clearer information, proper affordability checks and access to redress when things go wrong should give shoppers proper protections should they choose this payment method."
Implementation Timeline and Procedures
Companies will be able to register for temporary permissions between May 15, 2026, and July 1, 2026. Following this initial period, firms will have a six-month window to apply for full authorization under the new regulatory regime. The Financial Ombudsman Service (FOS) will handle consumer complaints related to BNPL services, providing an additional layer of consumer protection.
Industry representatives have generally welcomed the regulatory clarity. A Clearpay spokesperson stated: "We welcome regulation, which will establish a consistent operating environment and clear compliance standards for all providers." Similarly, a Klarna representative noted: "These new rules will raise standards across the market."
Anne Pardoe, Head of Policy at Citizens Advice, highlighted the urgency of these protections: "These protections couldn't come soon enough. The growing BNPL market is driving more people to our services each year, with many struggling to repay credit they can't afford or falling behind on essential bills."
Consumers experiencing financial difficulties can access free debt management guidance through the government-backed MoneyHelper website. The FCA's measured regulatory approach aims to maintain BNPL accessibility while ensuring sustainable lending practices and encouraging market innovation that benefits consumers.
